January 13, 2009 / 9:47 AM / in 9 years

WRAPUP 2-Tesco, Metro show scars of downturn, but coping

* Tesco underlying UK sales up 2.5 pct in 7 wks to Jan. 10

* Tesco group sales up 11.6 pct, international up 32.7 pct

* Metro 2008 sales up 5.9 pct; Q4 up 3 pct after FX moves

* Metro keeps 2008 earnings guidance, sees tough 2009

* Tesco shares climb 3.3 pct, Metro falls 1 pct

(Adds more detail, background, updates shares)

By Mark Potter and Eva Kuehnen

LONDON/FRANKFURT, Jan 13 (Reuters) - Two of Europe’s biggest retailers showed the scars of economic downturn on Tuesday, with Britain’s Tesco (TSCO.L) reporting its weakest UK sales growth over Christmas since the early 1990s and Germany’s Metro MEOG.DE posting a slowdown in fourth-quarter sales growth.

But both groups also revealed the benefits of scale and diversity, with Tesco gaining market share in non-food lines like electricals and clothes and Metro saying it would broadly meet its earnings target, easing fears of a profit warning.

Shares in Tesco, the world’s third-biggest retailer, rose as much as 3.3 percent to 361.7 pence in early trading, while world number four Metro dipped over 1 percent to 25.84 euros.

Retailers across the world are struggling as shoppers curb spending amid rising unemployment and fears of deep recession.

World number one Wal-Mart (WMT.N) cut its fourth-quarter earnings forecast last week, following a profit warning from its closest rival, France’s Carrefour (CARR.PA), in December.

Economic data suggests trading will remain tough this year, despite falling interest rates, food and fuel prices.

The British Retail Consortium said on Tuesday like-for-like sales fell 3.3 percent on the year in December, the biggest drop since its survey began 14 years ago, while data from the European Commission last week showed economic confidence sliding to record lows in December. [ID:nLAG003182] [ID:nL8205482]

The downturn is hitting some retailers harder than others.

British video games retailer Game Group GMG.L said on Tuesday full-year profits would be slightly ahead of expectations as it benefits from the popularity of games consoles like Nintendo’s 7974.OS Wii. [ID:nLC547495]

But groups selling discretionary items are suffering.

British tile retailer Topps Tiles (TPT.L) posted an 18.1 percent drop in underlying sales for the first 13 weeks of its fiscal year and clothing group Jacques Vert JQV.L a 5.4 percent fall for the 11 weeks since Oct. 25. [ID:nLD726072]

“The recession is affecting everywhere,” Tesco Finance Director Andrew Higginson told Reuters.

“Against the overall background of, I suspect, rising unemployment and economic slowdown it will be a tough year.”


Tesco, which takes about one in every eight pounds spent in British shops, said sales at British stores open for at least a year, excluding fuel, rose 2.5 percent in the seven weeks to Jan. 10, in line with analysts’ expectations. [ID:nLD60289]

Analysts expect that will also be the weakest performance among Britain’s top four food retailers. Number three J Sainsbury (SBRY.L) last week posted a 4.5 percent rise in underlying sales for the 13 weeks to Jan. 3.

However, Tesco reported a small rise in underlying non-food sales, an improvement from its third-quarter results, and said it was taking market share across a range of categories.

It also said most of its underlying sales growth was driven by higher volumes, rather than higher prices. Tesco launched a range of discount brands in September which has offset much of the benefit rivals are still reaping from food price inflation.

Tesco, which employs 440,000 people in about 4,000 stores across 14 countries, said group sales rose 11.6 percent. That included a 32.7 percent surge in international sales, helped by a recent acquisition in South Korea and a weaker pound.

“Tesco stands apart from its UK peers because of its diversified growth strands. Tesco stands apart from its global peers due to its double-digit sales growth and robust margins,” said Shore Capital analyst Clive Black in a research note.


Metro, which employs 290,000 people in 2,200 stores across 32 countries, reported 2008 sales up 5.9 percent at 68 billion euros ($91.1 billion), or up 6.1 percent excluding currency effects, just under analysts’ average forecast of 68.28 billion.

That included fourth-quarter sales growth of 3 percent, or 3.8 percent excluding currency changes.

“In the course of quarter four 2008, the economic environment drastically deteriorated,” said Chief Executive Eckhard Cordes. “2009 will be a very difficult year. Customers will think twice, where and for what they spend their money.”

However, Metro said it would respond by cutting capital spending to 1.6 billion euros this year from over 2.2 billion euros in 2008 and that 2008 earnings would be broadly in line with its previous target, allaying fears of a profit warning.

JP Morgan analysts took heart from the earnings guidance, but were worried by the 2.4 percent drop in fourth-quarter underlying sales at the group’s cash and carry business.

Underlying fourth-quarter sales fell 1.7 percent at Media Markt/Saturn, Europe’s biggest electricals retailer, and were down 1.3 percent at department stores unit Galeria Kaufhof. (additional reporting by James Davey; Editing by David Cowell)

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