Shares in Tesco surged almost 13% yesterday, as sales figures from the UK's biggest supermarket revealed that it, too, is suffering high-street pain - but the group also said its new budget range was luring an additional 300,000 shoppers a week.
Shares in Tesco surged almost 13% yesterday, as the latest sales figures from the UK's biggest supermarket revealed that it, too, is suffering high-street pain - but the group also said its new budget range was luring an additional 300,000 shoppers a week.
News of the early success of Tesco's discount range eclipsed news that the supermarket group's third-quarter underlying UK sales growth was the lowest since the early 1990s.
The group's Discounter ranges, which includes the "market price" fruit and vegetable ranges, now run to nearly 800 lines.
While it has wiped between 2% and 3% off sales, investors interpreted the news as a clear sign the business is structurally and strategically well positioned to face the consumer downturn.
One in four Tesco shoppers is now buying from the new Discounter range, the group's first major change in range since it introduced the Value brand during the last recession, and accounted for 5% of goods going through the tills.
Shares in Tesco, which is the world's third-biggest retailer behind US group Wal-Mart and France's Carrefour, yesterday leaped 12.99%, or 37.375p, to 325.375p - recovering some of its November losses.
One City analyst had suggested that Tesco may be among companies needing to launch a rights issue.
However, Nomura analyst Matthew Truman yesterday said: "This stock was priced for a profit warning and, as we thought, it has not materialised. What has is a robust, positive and clear message."
Tesco also said it had found another £90m to cut from its cost base in the UK alone this year, on top of the £450m savings earmarked.
Nonetheless, competition remains fierce and cut throat on the high street. Retailers are slashing prices in a bid to attract shoppers hit by sliding house prices and fears of unemployment.
Marks & Spencer has held a 20%-off, one-day sale to try to stimulate sales, and Moss Bros issued a profit warning earlier this week.
However, the pain has been overwhelming for others, with Woolworths tumbling into administration last week.
Tesco yesterday reported that like-for-like sales, excluding petrol, climbed by 2% in the last three months - half the growth it achieved in the previous quarter. Including petrol, like-for-like sales were up 3.2%.
The group's total worldwide sales increased by 11.7% during the last quarter, largely on the back of its international strategy.
Tesco's Asian stores appear to be performing best, with sales up 29% on the same period last year.
Earlier this year, Tesco bought Homever, a 36-strong discount chain based in South Korea.
However, in Europe sales growth declined to 6% at constant exchange rates, and it said it is putting the brakes on its US expansion plans as the economic gloom hits a number of its key areas in North America.
Hungary and Turkey were the worst Tesco business regions, but the group said it "remained committed" to both countries.
In the UK, the grocer's non-food ranges suffered a small decline, although clothing sales still showed growth and laptop sales were strong.
Big-ticket items, however, were selling far less well, unless they were offered at heavy discounts, the group said.
In a rare gloomy quarterly trading update, Sir Terry Leahy, Tesco's chief executive, said: "We are pleased with our progress, but we are also realistic - the economic climate and the strain this is putting on consumers everywhere is something that all businesses are feeling, including ours."
Tesco's figures are markedly worse than sales figures produced recently by rivals J Sainsbury and Asda.
However, the company said it will seek to capitalise on a loss of confidence in banks to grow its personal finance business, helped by the soon-to-complete purchase of the remaining 50% stake of Tesco Personal Finance from struggling Royal Bank of Scotland.
It also confirmed it was interested in buying a handful of Woolworths stores.
Sainsbury revealed recent like-for-like sales up 3.9%, while Asda grew 6.9% in the three months to the end of September.
Wm Morrison, the UK's fourth-biggest grocer, will report like-for-like sales later this week.
Keith Bowman, equity analyst at stockbroker Hargreaves Lansdown, said: "As expected, even the retail juggernaut Tesco is struggling, as consumers rein-in spending.
"While overall progress has been made, core UK like-for-like sales have halved since the half-year results with the discount operators such as Aldi and Lidl likely to have benefited."
He added: "Although the group's value offering has recently been bolstered, management appear to have been slow in gauging the consumer environment, with the company now paying the price."
