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Tesco sales in the UK down for 4th straight quarter


Despite increase in European and US sales, share prices fall as core UK market stutters

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Tesco posted a drop in underlying British sales for the fourth straight quarter as cash-strapped shoppers cut spending on non-essential goods and price cuts sliced into revenue in its core UK market.

And despite an increase in sales on mainland Europe and in the US, shares in Tesco Plc were down 6.4p to 390.45p at 9.26am, valuing the business at £31.92 billion.

Chief Executive Philip Clarke said that UK consumers faced severe financial pain. "The UK economy is fragile, unemployment's at a 15-year peek, under-employment's rocketing, so we're facing into tough times," he said.

Tesco, which takes about one in every £10 spent in UK shops, said that sales at British stores open for at least a year - excluding fuel and VAT sales tax - were down 0.9% in the 13 weeks to November 26, Tesco's financial third quarter.

British retailers are nervous about consumer spending running into the key Christmas trading period following a string of profit warnings from companies such as French Connection, Game and Blacks Leisure and weak industry data for November.

"We're all prepared for Christmas and there's a lot to play for," Clarke said this morning.

Austerity measures

Store groups across Europe are struggling as disposable incomes are squeezed by rising prices, stagnating wage growth and government austerity measures, and as they worry the euro zone debt crisis will plunge the region back into recession.

On Tuesday Metro, the world's fourth biggest retailer, issued a profit warning, saying festive trading had started slowly.

Tesco, which takes about one in every £10 spent in UK shops, said that sales at British stores open for at least a year - excluding fuel and VAT sales tax - were down 0.9% in the 13 weeks to November 26, Tesco's financial third quarter.

That compares with analysts forecasts in a range of down 1% to up 0.5% and was unchanged from the drop of 0.9% in the second quarter.

It also compares with increases reported by rivals Asda, J Sainsbury and Wm Morrison, albeit for different trading periods.

The firm said its outlook for the year as a whole remained unchanged.

Tesco, which trails France's Carrefour and US leader Wal-Mart by annual sales, makes around two thirds of its sales and three quarters of its profit in Britain.

The group has suffered in the economic downturn more than its main British supermarket rivals, in part because it sells more discretionary non-food goods where shoppers have been cutting back most.

Price cuts

Tesco hit back in September, cutting prices in a £500 million investment. It then reduced prices again in November to lure in Christmas shoppers.

Clarke said he was pleased with the early response of customers to the "Big Price Drop" campaign, with food and grocery volume up by nearly 1% in the third quarter compared to the second.

"We created deflation in our food and grocery categories but we've got volume improvement. The Big Price Drop's having the effect we wanted it to," he said. "We never expected to see it absolutely immediately in the top line because we're bringing deflation to our price list."

However, shares in Tesco were down 1.7%, with some analysts saying consumers' response to the price cuts had been muted.

"We were hoping to see more of an improvement in momentum following the introduction of the new pricing strategy," said Espirito Santo analyst Caroline Gulliver.

Market share falling

Market research group Kantar Worldpanel said on Tuesday that Tesco had recently lost market share to rivals.

Tesco noted continued weak demand in the more discretionary areas of general merchandise, clothing and electricals.

Finance Director Laurie McIlwee said third quarter like-for-like sales in this category were still negative but were better than the 5% fall in the second quarter.

Third-quarter group sales including fuel rose 7.2%, broadly in line with analysts' expectations.

The international business excluding fuel and on a like-for-like basis was up 1.1%.

Underlying sales growth in Asia slowed to 0.8%, held back by disruption in Thailand caused by flooding.

Like-for-like sales were up 0.9% in continental Europe and up 11.9% in the United States where the firm's Fresh & Easy business is gaining momentum.

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Tesco sales in the UK down for 4th straight quarter
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