Tesco sees sales dip as sign of UK consumers tightening pursestrings

Published on Monday 13 June 2011 22:43

Tesco saw sales at its established UK stores drop for a second quarter in a row as hard-pressed consumers were forced to spend their money on increasingly expensive fuel.

Excluding fuel and VAT, the UK's largest supermarket posted a 0.1 per cent year-on-year drop in same-store sales in the 13 weeks to 28 May, an improvement on the 0.7 per cent fall in the previous quarter.

It reported better news from its foreign ventures, with strong growth in Asia and its Fresh & Easy business in the US helping total group sales gain 6.7 per cent, excluding fuel.

Philip Clarke, Tesco's chief executive who took up the role in March this year, said: "The overall performance of our businesses in Asia and Europe has again been pleasing, led by further strong growth in Thailand and across our Central European region.

"Uncertainties remain but with early, encouraging signs of better performance emerging in both the UK and the US, I am confident that this start will provide the platform for another year of growth and rising return on capital employed for Tesco."

Two foreign markets that didn't perform well were Japan, with sales down 6.4 per cent following March's devastating earthquake, and the recession-hit Irish Republic, where sales fell 3.9 per cent.

Tesco said UK customers were having to "direct some of their spending to petrol at the expense of their normal shopping" which remains a drag on underlying growth.

However, the company said the UK business continues to grow faster than the industry as a whole, as new stores helped offset weak demand in general merchandise.

Tesco said own-brand foods were seeing good growth, with its Finest range up almost 10 per cent on a like-for-like basis as hard-pressed consumers sought alternatives to dining out.

Yesterday's figures proved grim reading for City analysts, who had predicted that the warm weather and string of Bank Holidays in April would have boosted Tesco's like-for-like sales into positive territory despite the difficult consumer outlook.

"Quite disappointing given that it includes the April bonanza," said Liberum analyst Simon Dunn, referring to the surge in demand during a sunny Easter and the royal wedding.

But Shore Capital analyst Clive Black said the firm's healthy overseas sales made the it "just about the fastest growing international food retailer in the world", with most of its peers - which include US giant Wal-Mart, France's Carrefour and Germany's Metro - seeing growth of between 1 per cent and 5 per cent.

Underlying sales in the US were up 11.1 per cent, improving on the previous quarter.

Tesco is aiming to drag is US Fresh & Easy chain into a profit by the end of its 2012-13 financial year after years of heavy losses.

Rival Sainsbury's will detail its own performance today.