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Tesco Reports First-Quarter Sales Up 10%, Led by International Gains

Tesco, Britain's largest grocery chain, saw its shares drop Tuesday despite posting a 10% gain in first-quarter sales, which were boosted by strong growth in international operations.

Analysts focused on what they called disappointing results in the United Kingdom, where Tesco commands nearly a third of the grocery market.

Like-for-like sales at home were up 4.7%, excluding petrol, below the consensus forecast of 5.2%.

"Tesco disappointing the market is unusual," Citigroup Global Markets said in a research note.

Tesco shares were down 4.9% at close to 434.5 pence on the London Stock Exchange.

"The first quarter numbers are not disastrous, just disappointing by Tesco's high standards," Citigroup said, adding that Tesco was still on track to hit full-year targets.

Andrew Wade, analyst at Seymour Pierce, said Tesco faced a more challenging environment, notably a price war with Britain's No. 2 grocer, Wal-Mart subsidiary Asda. However, "we see no significant reason to stop recommending the stock," Wade said.

"We're still strongly ahead in nonfood sales but the overall market has slowed and the interest rate rises have had an effect," said Andy Higginson, Tesco's finance director.

In the 13 weeks ended May 26, Tesco sales outside the U.K. rose 22%.

Sales in Asia gained 32% at constant exchange rates, the company said. The trading update gave no figures on earnings.

"International is delivering particularly strong growth; pushing on well with both new store development and the integration of the stores we acquired last year -- and our plans to open in the United States later this year are well on track," said Chief Executive Terry Leahy.

The company plans to open U.S. convenience stores in Los Angeles, Phoenix, San Diego and Las Vegas in November.

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