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Tesco UK expansion threatens rivals

Tesco, the UK's largest retailer, will embark on a major UK store opening programme in the next six months as it looks to extend its lead in the cut-throat supermarket wars.

Tesco will open 1.7m square foot of new space in the UK in the second half of its financial year. This space is equivalent to around 16pc of rival Wm Morrison's entire store base. In the first half of its year, Tesco opened just 0.4m square feet.

City analysts expect details of the expansion to be included in Tesco's interim results on Tuesday.
The results will be Sir Terry Leahy's final results as Tesco's chief executive. He will step down from the company next March having run the retailer since 1997.

Analysts expect Tesco to also discuss plans to carry out more "sale and leasebacks" on its existing freehold property portfolio. In recent years Tesco has carried out sale and leaseback deals worth £5bn, under which it sells freehold stores to third parties then leases them back.
Analysts at Bernstein Research expect "some discussion of the company's future plans to unlock value from its £34.6bn of property".

Analysts said that Tesco's continued store expansion in the UK – where it already has a market share of more than 30pc – show that it does not believe that it has saturated its domestic market. "Although this [growth in the second half] is atypical, it illustrates that Tesco certainly does not believe that it is ex-growth in the UK. The company secured even more sites than normal during the downturn and we expect to see the benefit of that investment over the next few years," said Barclays Capital in a note to clients.

Tesco's interim results this week will show that the chain has continued to grow. The City expects sales in the six months to August 28 to have risen by around 8pc to £30bn while pre-tax profit is expected be up 3.4pc at £1.6bn.

Source : James Hall -

02 October 2010
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