Tesco Calls For No Rise In VAT As 1Q Sales Slow

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Tesco Calls For No Rise In VAT As 1Q Sales Slow

Adds CEO, FD comment, detail.)



By Simon Zekaria

Of DOW JONES NEWSWIRES



LONDON (Dow Jones)--Tesco PLC (TSCO.LN), the U.K.'s largest retailer by sales, Tuesday called on the government not to damage a fragile economy by raising value-added tax.

Finance Director Laurie McIlwee said that a government-imposed increase in VAT--which economists expect to rise to 20% from 17.5%--would have a negative impact on the economy.

"(A VAT increase) wouldn't be appropriate. The economy is recovering but it is pretty fragile, " he said.

Asked if it would be better to introduce the rate hike next year, McIllwee said, "If there is a VAT increase, it should be in the future rather than now".

McIlwee was speaking as the retailer reported slowing U.K. sales growth in the fiscal first quarter but said the outlook for the full year remains unchanged and the company is well-positioned for the recovery.

"We're in good shape and well-positioned to deliver further growth as the economic environment continues to improve," Chief Executive Terry Leahy said in a statement. "The...recovery is well underway although the pace and strength of economic recovery varies across our markets."

Tesco posted a 1.1% year-on-year rise in U.K. sales from stores open at least a year, excluding fuel, for the 13 weeks to May 30. Adjusted for value-added tax, the figure was 0.1%. This compares with a 4.3% rise excluding fuel and VAT last year. The group maintained guidance of 3% U.K. same-store growth for the full year.

Rival J Sainsbury PLC (SBRY.LN), the U.K.'s third-largest grocer, is also expected to report slowing sales Wednesday.

Falling food inflation has hit the top line of U.K. supermarkets since the start of the year. Economists fear that consumer spending and confidence in 2010 will come under pressure from rising fuel prices, as well as forecasted tax hikes, public spending cuts and unemployment as the coalition government reins in borrowing.

Wal-Mart Stores Inc.'s (WMT) Asda Group Ltd., the U.K.'s second-biggest retailer, last month said it expects trading to remain tough after same-store sales excluding fuel and VAT fell 0.3%.

William Morrison Supermarkets PLC (MRW.LN) in May booked a 0.8% rise in first-quarter same-store sales excluding fuel and VAT and said it plans for flat inflation this year.

Tesco--which accounts for over 30% of the U.K. grocery market--said it sees evidence of a steady consumer recovery in sales growth for its premium food ranges, non-food and games. It said its television sales are boosted by the soccer World Cup.

The company also said the number of families redeeming points for its Clubcard scheme rose 20% year-on-year. The group is growing the number of customer accounts for Tesco Bank, it added.

Excluding fuel, Tesco's group sales rose 6.9% in the first quarter compared with a 12.6% rise in the same period last year.

International sales at actual exchange rates excluding fuel rose 11.9%, with 15.4%, 7.3% and 37.8% growth in Asia, Europe and the U.S. respectively.

In April, Tesco--the fourth largest retailer in the world behind U.S.-based Wal-Mart, France's Carrefour SA (CA.FR) and Germany's Metro AG (MEO.XE)--posted a forecast-beating 9.3% rise in full-year net profit to GBP2.34 billion.

Philip Clarke, currently head of Europe, Asia and IT, will succeed Leahy as CEO next March.

Tesco shares closed Monday at 392 pence, valuing the company at GBP31.27 billion.
Tesco Calls For No Rise In VAT As 1Q Sales Slow

Adds CEO, FD comment, detail.)