Tesco reports second straight quarter of UK sales growth

Retail giant Tesco on Thursday reported a second straight quarter of UK sales growth. It is the first time it has done so in five years, and raised the possibility of resuming dividends as new ranges of cheaper fresh foods proved a hit with customers.

UK same-store sales rose 0.3 per cent in the 13 weeks to May 28th, Britain’s biggest grocer said, slightly ahead of analysts’ estimates for a 0.2 per cent increase. The news came as investors gathered for the company’s annual meeting in London.

Tesco said it is to sell the Harris & Hoole cafe chain, part of an effort to extricate itself from previous expansions and return to the relative simplicity of being a supermarket business.

The sale to Caffè Nero, Britain’s third-largest cafe chain, marks the end of a plan to push a coffee shop brand with “independent” credentials and insert the cafes into Tesco’s huge and under-used hypermarkets.

It is the latest in a rash of disposals triggered by the arrival of chief executive Dave Lewis in 2014 as the grocer slumped to a £6.4 billion loss.

Earlier this month Tesco sold its Dobbies garden centre business, a Turkish subsidiary and the Giraffe restaurant chain – the latter bought in 2013, another attempt to breathe life into its stores.

Under Mr Lewis, the supermarket group has focused on its core business of food retailing.

Challenges still remain, such as the company’s £15.5 billion debt pile, its junk credit rating and encroachment from new competitors such as online giant Amazon.com.

"Tesco will be encouraged by delivering two consecutive quarters of like-for-like sales growth but the numbers are marginal, reflecting how difficult the competitive trading environment is for mainstream retailers," Jon Copestake, an analyst at the Economist Intelligence Unit, said.

The grocer has overhauled categories like produce and meat, labelling containers of strawberries and packs of chicken breasts under the banner of fictitious farm names such as Rosedene and Willow. The fresh-food revamp has worked "almost exactly as Dave Lewis said it would," said Charles Allen, an analyst at Bloomberg Intelligence. "It shows the retailers understand customers better than the chattering classes."

The seven new fresh food brands introduced in March meant customers were able to save about 17 per cent on the price of 10 of the most popular meat, fruit and vegetable lines, Tesco said.

Demand for fresh produce was 5 per cent ahead of the UK grocery market, though the lower prices reduced same-store sales growth by 0.7 percentage points.

– (Bloomberg/Financial Times Service)