* Tesco to report Q3 sales Dec. 5 at 0700 GMT
* UK Q3 lfl sales seen down 0.9 pct to up 0.2 pct ex-VAT and
fuel,
* Performance seen impacted by weak non-food market in UK
* Group sales seen up about 2 pct after 1.4 pct H1 increase
LONDON, Nov 30 (Reuters) - Eight months ago Tesco Plc
chief executive Phil Clarke set out a 1 billion pound
($1.6 billion) recovery plan to arrest the group's worrying loss
of market share. How well it's working may start to emerge next
week.
Britain's biggest retailer stunned investors in January with
its first profit alert in more than 20 years and the group is
battling to regain momentum against a weak economic backdrop,
with consumers fretting over job security and a squeeze on
disposable incomes.
In April Clarke launched a strategy to revive the company's
fortunes in its key domestic market - which still accounts for
three quarters of group profits - involving more staff, revamped
food ranges, smartened stores and refined advertising.
So an update due on Dec. 5 covering trading in the 13 weeks
to Nov. 24, Tesco's fiscal third quarter, will be scrutinised
for any early signs the programme is paying off.
Analysts aren't particularly upbeat.
Eight banks and brokerages polled by Reuters forecast sales
in a range of down 0.9 percent to up 0.2 percent at British
stores open for more than a year, excluding fuel and VAT sales
tax.
That compares with an increase of 0.1 percent in the second
quarter, which had been Tesco's first rise after 18 months of
decline.
"Tesco are throwing a lot of money at turning around their
ailing food business in the UK, with some signs of success
against a tough industry backdrop," said independent retail
analyst Nick Bubb. "But the stock market is worried that overall
progress will be held back by weak non-food sales."
Rivals Asda and J Sainsbury Plc have both reported
sales increases and the only major domestic rival to have
reported a decline was No. 4 player Wm Morrison, albeit
for different trading periods.
NON FOOD
Tesco's woes are reflected in its shares, which have fallen
18.4 percent over the last year, underperforming the STOXX
Europe 600 retail index by 26.5 percent.
Its problems in part relate to the kind of goods it sells.
The company stocks more "discretionary" non-food goods such
as fridges, where hard-pressed shoppers have been cutting back
most in the downturn.
Though any stalling of sales growth ahead of the Christmas
trading period will inevitably increase the pressure on Clarke,
a Tesco lifer, most analysts attribute the slowdown to a weaker
overall non-food market in the UK and anticipate Tesco's food
sales growth to be little changed compared with the second
quarter.
They reckon that in food Tesco is performing broadly in line
with the market, meeting the stated first target of Clarke's
recovery programme.
"UK food trends suggest shoppers are responding favourably
to the improvements in the offer, masked by non-food headwinds,"
said analysts at brokerage Jefferies.
Most analysts expect Clarke to reiterate his confidence in
the UK plan and a better Christmas performance against a weak
comparative last year.
However, his challenges are not confined to the UK. With
more than 6,600 stores in 14 countries, Tesco is the world's
third-largest retailer behind France's Carrefour SA
and U.S. leader Wal-Mart Stores Inc, parent of Asda.
Questions remain over Tesco's long-term commitment to U.S.
chain Fresh & Easy, where analysts anticipate third-quarter
underlying sales growth may have eased from the second quarter's
6.9 percent. Some believe a humiliating retreat could be on the
cards next year.
While Thailand should show an improving trend against a
flood-hit third quarter last year, in South Korea, Tesco's
biggest overseas market, legislation which allows local
governments to impose shorter trading hours is hurting sales.
Trading in eastern Europe, particularly in Poland, will
reflect continued euro zone instability.
Analysts expect total group sales to rise about 2 percent
after a 1.4 percent increase in the first half.
($1 = 0.6236 British pounds)
(Editing by David Holmes)