Tesco shares leap as discount range lures shoppers

By Mark Potter

LONDON (Reuters) - Tesco said its new budget range was luring an extra 300,000 shoppers a week, boosting its shares on hopes it may be better placed to cope with a recession than its rivals.

News of the early success of Tesco's discount brands range eclipsed confirmation that the supermarket group's third-quarter underlying UK sales growth was the lowest since the early 1990s.

Tesco shares, which sank to a 4-year low last month, jumped as much as 7.5 percent to 309-1/2 pence in early Tuesday trading.

"This stock was priced for a profit warning and, as we thought, it has not materialised," said Nomura analyst Matthew Truman. "What has, is a robust, positive and clear message that the business is structurally and strategically well positioned for the consumer downturn."

Retailers are slashing prices in a bid to attract shoppers hit by sliding house prices and fears of unemployment. The pain has been too much for some, with sweets-to-DVDs chain Woolworths (WLW.L) falling into administration last week.

"The outlook for next year looks fairly sobering," Tesco Finance Director Andrew Higginson told Reuters. "I think it's going to be a very tough year in the consumer economy."

Tesco, which employs 440,000 people in about 4,000 stores across 14 countries, said it would cope by cutting an extra 90 million pounds of costs this financial year to take total planned savings to 540 million pounds.

It will also restrict capital spending to less than 4 billion pounds next year from around 4.5 billion this year and ask suppliers to "play their part," Higginson said in a telephone interview, without elaborating.  Continued...