Tesco sales fall puts recovery in the UK in doubt

Kasmira Jefford
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TESCO’S shares tumbled five per cent yesterday after Britain’s largest supermarket chain posted a decline in like-for-like sales that once again cast doubt over the progress of its turnaround plan.

UK sales at stores open more than a year fell by one per cent in the thirteen weeks to 25 May, which Tesco blamed on a deliberate move away from sales of certain general merchandise products, such as electronics.

Sales of frozen and chilled convenience products also suffered as a result of the horsemeat crisis although Tesco chief executive Philip Clarke was quick to point out that all other food categories improved in the quarter.

Clarke said the decline and changes to non-food was “a natural consequence” of the £1bn turnaround plan put in place 18 months ago.

The group is cutting the amount of space dedicated to electricals and DIY products and replacing them with “higher margin” products such as clothing and cosmetics while also dedicating more space to food.

Clarke warned that non-food like-for-like sales would remain down in the current financial year, but stressed it was a “top line” (sales) rather than a “bottom line” (profit) drag.

However, analysts were also concerned by the decline in sales overseas, where only two of its 11 markets reported growth in the quarter.

Like-for-like sales fell 3.8 per cent in Asia, hit by restrictions on trading hours in South Korea and a slowdown in China. They also fell 5.5 per cent in its continental European markets, hit by recession and fierce competition.