Tesco sees UK sales drop 1.5 per cent in third quarter

Tesco has announced a 1.5 per cent fall in like-for-like sales in the three months to 23 November, which it says is down to a weaker UK grocery market. Underlying sales fell in every country in which it operates.

The sobering news is in line with predictions from Citi analysts. It doesn't bode well for chief executive Philip Clarke, who claimed he could reinvigorate the store in a £1bn turnaround plan, following a shock profit warning on the back of poor trading last Christmas.

Clarke said in today's statement: "Continuing pressures on UK household finances have made the grocery market more challenging for everyone since the summer and our third quarter performance reflects this." He explained that Tesco has been working to rejuvenate its general merchandise and cut down on new space being opened.

When it comes to overseas trade, Clarke said that the near-term trading environment "also remains tough". Like-for-like sales in central Europe, which saw profits collapse in the first half of the financial year, slid four per cent. In Asia, they dropped 5.1 per cent.

Shares in Tesco have continued to slump over the last couple of days, after HSBC downgraded its stock to "underweight".

When it comes to outlook, the group said: "Despite the challenging conditions in many of our markets, we are performing in line with market expectations for the full year."

Joe Rundle, ETX Capital:

Tesco appears confident it can meet FY earnings guidance despite worries in the market of another profit warning.

The market may not be to convinced, however, as this year’s performance has been dismal, particularly when compared to UK rival J Sainsbury’s who saw underlying sales rise 1.5 per cent in Q2 of 2013 while Tesco’s sales were flat.

Tesco has been unable to deliver on earnings which has led to disappointment for investors who are now doubting the company’s ability to turn around.

Heading into 2014, there will be more pressure on Tesco to demonstrate the effectiveness of its strategy or else the market will continue to lose confidence in the retailer and its management.

This Christmas sales period should buffer up sales but it’s a competitive market out there in the supermarket world with Asda announcing it will spend £200m cutting prices in 2014 and Sainsbury’s continues to demonstrate strong sales momentum.