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Tesco Q3 sales fall 0.5% YOY despite robust performance in UK

Tesco PLC on Jan. 10 reported fiscal third-quarter sales fell 0.5% year over year as challenging conditions in Central Europe and Asia offset a robust performance in the U.K. supermarket retailer's domestic business.

In a trading update, Britain's largest supermarket operator said it was confident in its outlook for the full year.

In the U.K. and the Republic of Ireland, by far the company's biggest markets, sales in the 13-week period ended Nov. 24, 2018, rose 0.6% year over year on a comparable basis at actual exchange rates. The increase was fueled by 9.7% year-over-year growth at wholesale business Booker, which Tesco acquired in 2018.

On a like-for-like basis, Tesco's sales edged up 0.5% year over year. Tesco attributed the 1.9% year-over-year growth in like-for-like sales in the U.K. and the Republic of Ireland to the relaunch of thousands of its own-brand products. After overcoming the initial disruption of the relaunch, U.K. sales volumes by the end of the quarter were outperforming the market, Tesco said.

For the six weeks to Jan. 5, encompassing the Christmas and New Year holidays, like-for-like sales increased 1.5%.

"In the U.K. we delivered significant improvements in our competitive offer and this is reflected in a very strong Christmas performance which was ahead of the market," CEO Dave Lewis said in a statement.

Overall, growth in the fiscal third quarter was held back by weakness in the retailer's international operations. In Central Europe, sales declined 7.2%. Tesco closed 14 unprofitable stores in Poland during the period and it plans to shutter another 32 as part of an ongoing cost-cutting process. Business in Poland also was impacted by seven fewer trading Sundays and additional public holidays at short notice, Tesco said.

Sales shrank 3.3% in Asia. In Thailand, Tesco said it is accelerating planned changes to its operating model as it continues to talk with suppliers on a new commercial strategy. A change in the Thai government-issued welfare cards program continued to impact sales, Tesco added.

"In Central Europe, the reshaping of our business continues and we are confident of the outcome we envisaged," Lewis said. "In Asia, negotiations with suppliers are concluding satisfactorily and we can see this in our simpler, clearer, more impactful offer for customers."

"We have more to do everywhere but remain bang on track to deliver our plans for the year and as we enter our centenary we are in a strong position," Lewis said.

In early-morning trading in London, Tesco's shares traded up 4.8 pence, or 2.3%, at 216.6 pence.