Tesco falters but investors keep faith for now

By Mark Potter

LONDON (Reuters) - Tesco (TSCO.L), the world's third-biggest retailer, is facing setbacks across its global business, but a renewed focus on low prices and measured expansion should ensure it emerges stronger than many rivals.

Until recently, Tesco's dominance in its home market and its international spread meant the British supermarket group was viewed as a relative safe haven from economic turmoil.

That has changed over the past few weeks as the group has struggled to keep pace with the surging popularity of discounters at home and a crisis in financial markets that has spread economic pain into emerging markets abroad.

This week, Tesco has been hit by three pieces of bad news from three continents in just three days, calling into question earnings forecasts and raising fears it is overstretching itself with ambitious expansion plans across continents and markets.

In just 12 months, Tesco has launched a new store chain in the United States, sealed its biggest ever acquisition with a deal in South Korea, bought out its banking joint venture partner and unveiled plans to expand into India.

This week, on an analysts' trip to Asia, the group also set out plans to accelerate growth in South Korea and China.

Attending the trip, Shore Capital analyst Clive Black said Tesco's bold expansion, coupled with a drive to lower prices across its global markets, was the right thing to do.

"While currently weak demand factors impact revenues, Tesco is pressing on with the development of a business that has massive scope to expand in its current geographies, so providing the case for long-term earnings and dividend growth," he said.