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PREVIEW-Tesco to report slowest UK growth since early 90s
November 28, 2008 / 5:08 PM / in 9 years

PREVIEW-Tesco to report slowest UK growth since early 90s

* Tesco Q3 trading update 0700 GMT, Tues. Dec. 2

* Morrison Q3 trading update 0700 GMT, Thurs. Dec. 4

* Tesco Q3 UK like-for-like sales ex-fuel seen up 1.9 pct

* Morrison Q3 UK like-for-like sales ex-fuel seen up 7.2 pct

By Mark Potter

LONDON, Nov 28 (Reuters) - Tesco (TSCO.L), Britain’s biggest retailer, is set to report its worst underlying UK sales performance since the early 1990s recession next week, underscoring the challenges facing the country’s store groups.

The supermarket group will report third-quarter UK like-for-like sales growth excluding fuel -- a key industry measure of performance -- of just 1.9 percent, according to the average forecast of 11 analysts polled by Reuters.

That would be the worst UK like-for-like sales performance for any reporting period since its annual results in 1992 to 1993, although it is only in recent years that the group has posted quarterly numbers and a sales figure stripping out fuel.

Forecasts range from 1.1 percent to 2.5 percent, and compare with 4 percent growth in the second quarter.

The slowdown is likely to add to jitters about UK consumer spending in the run-up to Christmas.

Store groups, including Tesco, have been slashing prices in a bid to attract shoppers hit by sliding house prices and fears of unemployment. The pain has been too much for some, with the retail chain of sweets-to-DVDs group Woolworths WLW.L and furniture group MFI both calling in administrators this week.

The Confederation of British Industry said on Thursday that UK retail sales plunged in November at their joint-fastest pace since records began 25 years ago. [ID:nLS607127]

Tesco, the world’s third-biggest retailer, has been losing UK market share to rivals for several months, partly because of its greater exposure to non-food sales, which have suffered more than groceries in the downturn.

But some of the recent slowdown in sales growth is self -inflicted, as Tesco introduced a range of discount brands in September in a bid to head off strong competition from hard discounters like privately-owned German groups Aldi and Lidl.

Data from market researchers Nielsen suggests the new brands have attracted customers, but with many existing shoppers also trading down to the cheaper products this has hit sales growth.

Analysts will be keen to hear whether Tesco expects this to continue, with many of them now forecasting UK like-for-like sales growth for next financial year below the group’s usual forecast range of 3 percent to 4 percent.

RIVAL MORRISON

Tesco also faces challenges in its international markets.

The group, which employs about 440,000 people in almost 4,000 stores across 14 countries, said earlier this month that underlying sales in its second-biggest market, South Korea, had fallen, and that it was slowing down its expansion in the United States because of an economic downturn there.

Weak number from Tesco are likely to contrast with a strong performance from rival Wm Morrison (MRW.L) on Thursday.

Britain’s fourth-biggest grocer is expected to report UK like-for-like sales of 7.2 percent, according to the average forecast of six analysts polled by Reuters, with estimates ranging from 6.5 percent to 7.8 percent.

Tesco shares have fallen about 40 percent over the past year, hitting a four-year low of 283.80 pence earlier this month. They have underperformed the DJ Stoxx European Retail Index .SXRP by 3 percent this year, compared with Morrison, which has outperformed the same index by 18 percent.

Tesco shares trade at 11 times forecast earnings, below Morrison on 14.6 times and J. Sainsbury (SBRY.L), Britain’s third biggest grocer, on 14 times.

At 1625 GMT, Tesco shares were down 3 percent at 292.8 pence, valuing the business at about 23 billion pounds ($35.5 billion). Morrison was down 0.3 percent at 241 pence, giving a market value of around 6.5 billion pounds.

Editing by Sharon Lindores

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