`Challenging' market hits sales at Tesco stores in UK

Supermarket giant Tesco reported slower-than-expected UK growth yesterday in a more "challenging" market for its non-food goods.

Supermarket giant Tesco reported slower-than-expected UK growth yesterday in a more "challenging" market for its non-food goods.

In the UK, like-for-like sales, excluding petrol, were ahead 4.7%, driven by higher market prices for commodities and seasonal fresh foods - but lower than the 5% to 5.5% expected by some analysts.

Tesco said its core UK food business saw solid growth, although the company experienced a weaker performance in non-food sales due to "more subdued" markets.

Overall group sales for the 13 weeks to May 26 were ahead 10% - marginally down on last year's 10.4%.

The easing growth in the UK offset another strong international performance - particularly in Asia where sales grew 32%.

In non-food, the company said its online and catalogue business, Tesco Direct, had performed well in "more challenging markets", but the firm was hit by slowing sales of entertainment items such as CDs and DVDs.

Tesco's finance director Andy Higginson said: "It's been a good start to the year, but it's fair to say that the consumer background has been a bit tougher.

"We're still strongly ahead in non-food sales, but the overall market has slowed and the interest rate rises have had an effect."

The slower-than-expected sales came as Tesco unveiled £270m in price cuts last week in response to a similar move from its closest rival, Asda, as Tesco's competitors raise their game to challenge the company's dominance.

Mr Higginson added: "This is the biggest price initiative we have ever undertaken. All the competition are doing pretty well and consumers are showing signs of being a bit more cautious, so we are going in very strong and very hard."

The company, which has 1,500 stores in the UK, grew underlying profits by more than 13% to £2.55bn in the year to February 24.

Panmure Gordon analyst Philip Dorgan, who had predicted like-for-like sales growth of 5.5%, described Tesco's UK performance as "slightly disappointing".

But he said the company's long-term prospects remain strong, with Tesco's entry into the US market later this year being a "potential goldmine".

The company plans to open stores in Los Angeles, Phoenix, San Diego and Las Vegas in November under a new convenience format called Fresh & Easy.

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