Tesco Q4 UK sales seen down

Tesco, the world's No 3 retailer, could report a drop in underlying British sales for the fourth quarter in a row on Thursday, overshadowing a more solid performance in its overseas markets.

Analysts forecast sales at British stores open over a year, excluding fuel and Vat sales tax, in a range of down 1.0 per cent to up 0.5 per cent for the 13 weeks to November 26, Tesco's financial third quarter.

That would compare with a drop of 0.9 per cent in the second quarter and with increases reported by rivals Asda, J Sainsbury and Wm Morrison, albeit for different trading periods.

Analysts will be looking for clues on the strength of UK consumer spending running into the key Christmas trading period following a string of profit warnings from companies such as French Connection, Game and Blacks Leisure and weak industry data for November.

Store groups across Europe are struggling as shoppers' disposable incomes are squeezed by rising prices, muted wages growth and austerity measures, and as they worry the euro zone debt crisis will plunge the region back into recession.

On Tuesday Metro, the world's No. 4 retailer, issued a profit warning.

Tesco has suffered more than its main British supermarket rivals, in part because it sells more discretionary non-food goods where shoppers have been cutting back most.

The group, which takes about one in every £10 spent in British shops, hit back in September by cutting prices.

While it is confident its £500-million investment will win customers and eventually boost revenues, analysts think the short-term impact will be to depress sales.

Tesco, which trails France's Carrefour and US leader Wal-Mart by annual sales, makes around two thirds of its sales and three quarters of its profit in Britain.

The group, with over 5,300 stores in 14 countries, has been relying on strong growth overseas, particularly in Asia, to boost sales and profit in recent quarters.

Analysts expect group sales to have risen by a high-single digit per centage, which would be broadly comparable with the increase posted by Wal-Mart and ahead of Carrefour and Metro.

Sales growth in Asia, however, may have been dented by flooding in Thailand, which is Tesco's second-biggest international market behind South Korea.