Tesco’s sales fall as recovery plan struggles

The supermarket group, with over 6,000 stores in 14 countries, said consumer confidence was subdued across all of its markets, with total sales up 2.2 per cent including petrol in the 13 weeks to May 26, its fiscal first quarter.

Once one of the most consistent British companies in terms of earnings growth, Tesco stunned investors in January with its first profit warning in over 20 years, saying it needed to invest heavily to stem a steady decline in UK market share.

Many European retailers have been struggling as shoppers’ disposable incomes are squeezed by higher prices, muted wages growth and government austerity measures.

Tesco, which accounts for about one in every £10 spent in British shops and makes over 70 per cent of its trading profit there, has suffered more than rivals like Sainsbury and Asda in part because it sells more discretionary goods like homewares, where shoppers have been cutting back most on spending.

The group said first-quarter sales at British stores open over a year, excluding fuel and VAT sales tax, fell 1.5 per cent, in line with analysts’ expectations.

That was marginally better than a 1.6 per cent decline in the fourth quarter of its previous financial year, despite a tough comparative period when sales were boosted by a royal wedding.

“Our performance in the UK has been steady during a challenging quarter for the industry as a whole,” said the firm.

“The industry remained very competitive through the quarter, with a significant amount of couponing activity.”

Tesco added that it saw its biggest ever week outside of a Christmas period in the run-up to the four-day Queen’s Diamond Jubilee holiday weekend, with over £1bn in sales. That will be included in second-quarter results.

“At this early stage of the year we are performing in line with market expectations for the group. The outlook for the year as a whole remains unchanged,” it added.

In April chief executive Phil Clarke, a Tesco career lifer who as a youth stacked shelves in his local store, slashed expansion plans for the retailer’s main British chain and said he would spend over £1bn on improving stores and online shopping in a bid to reverse the decline in market share.

He said the UK business needed more staff, smarter stores, lower prices and better products after becoming too focused on cutting costs and boosting profit margins. But he did not give a timetable for the plan to deliver better sales.