Nov 24, 2010
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Tesco sees international returns rising

Nov 24, 2010

LONDON - Tesco (TSCO.L), the world's No.3 retailer, has seen a pick up in sales growth in South Korea, its biggest market outside Britain, as well as rising sales in China, Thailand, Malaysia and India.


The supermarket group, on the first day of a trip to Asia with analysts, also said returns in Asia and mainland Europe would reverse their recent decline as economic recovery takes hold and its assets mature, and that it expects to open its first cash and carry in India in May next year.

Tesco, with over 5,000 stores across 14 countries, makes about 70 percent of sales and over three-quarters of its profits in Britain. But its overseas markets are growing strongly, with more than half of the profit growth achieved in the six months to August 28 coming from Asia and continental Europe.

In presentation slides published on its website, the group said sales at stores open over a year rose 6.7 percent in South Korea in the nine weeks to October 31, up from 6 percent in the second quarter.

Like-for-like sales in China and Thailand were up 8.3 percent and 3.4 percent in the same period, down from 9.3 percent and 4.8 percent growth respectively in the second quarter, while underlying sales in Malaysia were up 0.5 percent following a second-quarter decline of 2 percent.

Tesco said its cash return on investment in Asia and mainland Europe fell during the recession to 11.8 percent in 2009-10 from 13.1 percent in 2007-8.

But it said this was back on a rising trend.

"International returns will improve from economic recovery in the short term and maturity of assets in the long term," it said, pointing out that returns in its leading international businesses (Ireland, Hungary, South Korea, Thailand) were up 14.7 percent, and up 16.9 percent at stores over four years old.

Tesco said like-for-like sales in Japan were down 5.7 percent so far in the third quarter, following a second-quarter decline of 5.4 percent, although it also reported a 20 percent uplift in sales of stores converted to a new format.

Like-for-like sales in India, where the group runs 10 Star Bazaar hypermarkets with franchise partner Trent, were up 18.3 percent in the four weeks to October 31.

The partnership plans to open a cash and carry in May.


Tesco, whose Homeplus chain is South Korea's No.2 retailer behind E-Mart, said it aimed to grow selling space of its hypermarkets and smaller Express stores at a compound annual rate of 9 percent to 1.46 million square metres by 2013-14.

It is developing mid-sized superstores and a smaller Express Mini format, as well as reviewing convenience stores, "value" stores and electronics shops.

The group also expects to grow online grocery sales in South Korea at a compound annual rate of about 50 percent to over 200 million pounds by 2013-14, and to grow profits at its retail services business in the country to 50 million pounds over the medium term from 18 million currently.

Tesco shares have lagged the STOXX 600 European retail index .SXRP by 7 percent this year, held back in part by concerns about international returns.

By Mark Potter

(Editing by Mike Peacock)

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