Tesco posts Christmas sales rise but warns of price pressure

Britain's biggest supermarket Tesco (Frankfurt: 852647 - news) has delivered a Christmas sales rise but warned it faces pressure from the slump in the pound.

Shares (Berlin: DI6.BE - news) fell 1.3% on the day after chief executive Dave Lewis said the retailer would try to mitigate the impact of the collapse in the value of sterling - which makes imported goods more expensive.

That was despite Tesco posting a 0.7% rise in UK like-for-like sales over the key Christmas trading period covering the six weeks to 7 January.

The supermarket said its fresh food offering outperformed rivals though non-food was held back by a scaling back of the group's Clubcard promotions.

However there was a strong performance for clothing and toys.

Tesco saw stronger growth in the 13 weeks to 26 November, when UK like-for-like sales rose by 1.8%, its eighth consecutive quarter of improvement and the best for more than five years.

That meant that over the 19-week period including Christmas, sales were up 1.4%.

Mr Lewis said: "We are very encouraged by the sustained strong progress that we are making across the group.

"It's another significant step in the turnaround of the business."

He said Tesco was working "shoulder to shoulder" with suppliers to help soften the impact of the fall in the pound on consumers.

It comes after the supermarket chain was last year involved in a stand-off with consumer goods giant Unilever (NYSE: UL - news) over the rise in prices of goods such as Marmite.

Sterling import prices are pushing higher thanks to the slump in the pound, which is down by about 19% since the Brexit vote in June.

Mr Lewis said: "Inflation pressure is there, but we will keep doing everything we can to minimise the impact."

Industry data earlier this week showed the cost of the weekly shop is going up as supermarket prices increase for the first time in more than two years.

While Tesco's share price fell after the latest trading update, that comes after a 29% rise over the last year as signs of a turnaround emerge under the leadership of Mr Lewis, who took over in September 2014.

The supermarket's update came as upmarket rival Waitrose said sales rose 2.8% in the Christmas period.

Earlier this week, rival Morrisons posted 2.9% growth over Christmas - its best rise in seven years - while Sainsbury (Amsterdam: SJ6.AS - news) 's said sales inched up by 0.1%.

There was double digit sales growth for discounters Aldi and Lidl - much of it attributed to their premium ranges - though this was largely down to their rapid expansion and they did not disclose same-store comparisons.

Tesco's trading update comes days after it said it was axing 1,000 jobs in a shake-up of its distribution network.

It said it was on course to deliver a rise in underlying full-year profits to at least £1.2bn, its first rise after five years of decline.