Tesco reports sales boost, despite high UK inflation

Supermarket group Tesco, Britain's biggest retailer, announced Thursday a rise in sales over the key Christmas period, despite high UK inflation weighing on consumer incomes. But its share price was the biggest loser on London's benchmark FTSE 100 index, shedding 3.3 percent to 204.9 pence in early deals as its update missed market expectations.
Total sales grew 1.8 percent in the 19 weeks to January 6 compared with the corresponding period a year earlier, Tesco said in a statement. They grew by the same amount in the four weeks leading up to December 25, the supermarket added.
In the UK, its main market, sales grew more than two percent over the reporting periods. "Whilst inflationary pressures remain in the UK market as a whole, we have continued to work with our supplier partners to help mitigate the impact on our customers," Tesco said. "As a result, we have passed on less inflation to date than our competitors." In Britain, wages are being eroded by Brexit-fuelled inflation according to recent data.
Since Britain voted to leave the European Union in June 2016, a drop in sterling - making imported goods more expensive - has pushed up UK annual inflation to 3.1 percent, a near six-year high. Tesco said it hopes to completes a takeover of British wholesaler Booker by early March. By purchasing Booker for £3.7 billion ($5.0 billion, 4.2 billion euros), Tesco is bidding to become the nation's top food business, slash costs and take on German-owned discount retailers.
Tesco is already the world's third-biggest supermarket chain after France's Carrefour and global leader Wal-Mart of the United States. Elsewhere on Thursday, British food-to-clothing retailer Marks and Spencer said total sales dropped 0.1 percent in its third quarter ending on December 30.
Shares were down 2.75 percent at 315.1 pence in morning London trade, making it the second biggest faller after Tesco. "In recent years the food business has been the bright light of the M&S empire, but its glow has definitely dimmed of late," noted Laith Khalaf, analyst at stockbroker Hargreaves Lansdown.
"That's probably a result of consumers tightening their belts when it comes to grocery shopping, and the strong performance of supermarket premium ranges suggests when customers are splashing out, they are increasingly doing it at (supermarkets) Sainsbury, Tesco and Morrison rather than at M&S."