Tesco hit by dip in results with Sir Terry Leahy set to leave

In Sir Terry Leahy's last sales statement as chief executive before he retires in March, Tesco offered evidence that although it is still by far the biggest supermarket, it is losing some ground to a resurgent Sainsbury's.

UK sales in the six weeks to January 8 were up just 0.6% despite rampant food inflation. That compares with 3.6% at Sainsbury's, although those figures are over a longer period including weeks not affected by weather.

Sir Terry's statement made mention of "severe winter weather conditions", the sort of caveat that the mighty Tesco would normally find beneath it.

Finance director Laurie McIlwee conceded blaming the weather was out of character. "It was pretty extreme, that's why," he said. "We call it the way we see it, and in the busiest shopping week of the year, the country came to a standstill."

One explanation is that shoppers who were concerned about the soaring petrol prices drove to their nearest stores rather than venture to Tesco's bigger out-of-town venues.

"We've got a bigger non-food business and much bigger out-of-town stores," said McIlwee. "One of the factors is the very high fuel price.

"If you've got to drive a few miles for a discretionary purchase, you are thinking twice about it."

He is "disappointed" that the Government has shelved plans to introduce a fuel duty stabiliser that would cut petrol prices.

McIlwee reckoned that this year's "slow and steady" economic recovery will continue adding that interest rates will and should stay low for sometime.

The sales hit in monetary terms from the snow is put at £50 million.

Philip Dorgan, an analyst at Altium Securities, said: "Tesco had a slightly disappointing Christmas, although if we were to be critical, then we would say that it has fallen short of how the market would have expected it to have performed from the time of its third-quarter announcement, whereas Sainsbury's has actually done better."

Not everyone is persuaded by Tesco's argument. Manoj Ladwa at ETX Capital says: "Tesco seems to be playing the blame game for its weak results over the Christmas period as the bad weather and a lack of Apple products all seem to have hindered sales. This is the same bad weather that didn't stop Sainsbury's reporting market-beating results yesterday."

Outside the UK, Tesco is still booming. International sales jumped 14.2%, and in Asia they soared 24.2%.

"There is nothing wrong with Tesco," McIlwee said and he added: "We get compared with a lot of other retailers that really aren't comparable."

Clive Black at Shore Capital said: "This below-par performance from Tesco will raise an eyebrow or two in the market and the industry given that management indicated at the third-quarter stage that the company was entering the Christmas trading period a little ahead of expectations."

New chief executive Philip Clarke takes charge in March. His first task, according to analysts, will be to tackle several quarters of "relatively subdued" performance in the UK.

Credit Suisse says Tesco shares are still a buy.
"Although today's short-term news is maybe unhelpful, it does not change our longer-term view," said the broker.

The shares were 9.8p cheaper at 413.9p.