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Last Updated: Tuesday, 19 June 2007, 18:21 GMT 19:21 UK
Tesco says year will be 'tougher'
Tesco sign
Tesco has expanded overseas to find fast-growing markets
Tesco, the UK's largest supermarket group, has said it faces a "tougher year", sending its shares 4.87% lower.

The company's comments come after UK interest rates have risen and amid concerns that higher borrowing costs will weigh on consumer demand.

However, the retailer said that its international sales should help offset any weakening in the UK market.

Tesco said its sales rose by 10% in the 13 weeks to 26 May, helped by Asian and other overseas demand.

That compares with sales growth of 10.4% in the same period a year earlier.

Andrew Higginson, Tesco's finance and strategy director, said that sales growth had slowed because of weaker demand for non-food products.

Mr Higginson said the year was going to be "tougher" because consumers were more cautious after four interest rate increases in 10 months.

"You are going to see a more cautious consumer," he explained. "Interest rates in particular have had an impact."

Tesco's shares fell and ended the day 4.87% lower at 434.5 pence in London trading.

On track

Tesco has been cutting prices on thousands of products as it looks to boost sales and keep hold of its market share.

The company has also been expanding its organic range and non-food products, which have been growing quickly in previous months.

Tesco said that sales outside the UK were up 24.6% at constant exchange rates.

Pacing gains were sales in Asia, which climbed by 32% at constant rates.

In the UK, like-for-like sales excluding petrol gained 4.7%, the slowest increase for a year.

Despite the dip in the UK, Tesco chief executive Terry Leahy said the company had made "a good start to the year across the group".

"International is delivering particularly strong growth; pushing on well with both new store development and the integration of the stores we acquired last year," he explained.

Mr Leahy also said the company's plans to open in the US later this year were well on track.

Growing plans

Tesco was also going ahead with its plans to buy Dobbies Garden Centres, Mr Higginson said.

There has been speculation that entrepreneur Tom Hunter may be about to table a rival bid that would top Tesco's 156m offer.

Mr Higginson said Tesco was ready to "react" should Mr Hunter table a bid.

However, he pointed out that: "We are the only people bidding for Dobbies at the moment so we will be posting our offer documents in the next couple of days." he said.

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