Tesco blames soaring petrol prices for weak sales
Tesco said high petrol prices were altering normal shopping habits as it revealed UK sales had dipped for the second quarter in a row.
Thrifty Sales of Tesco Finest range up 10% as shoppers seek alternatives to dining out
The supermarket giant reported that like-for-like sales excluding fuel and VAT dropped 0.1% in the 13 weeks to May 28.
This was an improvement on the 0.7% fall seen in the previous quarter - but it missed an average forecast of a 0.6% rise in a Reuters' analyst poll.
Total UK sales including fuel and VAT were up 7%.
'In addition to the other obvious pressures on UK consumers, high fuel costs continue to mean that customers have to direct some of their spending to petrol at the expense of their normal shopping and this remains a drag on both industry and our own like-for-like growth,' the company commented.
It stressed the UK business was growing faster than the industry as a whole in a cautious consumer environment, and hailed an 'excellent' performance in new stores.
But Tesco admitted it was being constrained by weak demand, particularly when it came to general merchandise.
The group said its UK non-food sales had strengthened in the past quarter, despite being negative, and should improve later in the year.
Meanwhile food sales performed well, with meat, fish and poultry recording good growth, and own-brand foods also proved popular.
Tesco's Finest range was up almost 10% on a like-for-like sales basis as hard-pressed consumers sought alternatives to dining out.
Supermarkets and the wider retail sector in the UK have been hit by a squeeze on consumer spending as high inflation is coupled with muted wage growth, while the average cost of a litre of unleaded petrol rose to 137.21p in May.
Overseas, the company's fast-growing Asian business continued to offset weak domestic demand, posting 3.2% like-for-like sales growth, driven by a strong show in Thailand. Total group sales including fuel were up 7.8%.
In Europe, like-for-like sales growth slowed to 2% in the first quarter as gains in Turkey and central Europe were offset by a weaker trend in Ireland.
The Fresh & Easy business in the United States reported 11.1% like-for-like sales growth as the company continued to attract new customers and a higher average spend.
Chief executive Philip Clarke, who took up the role in March this year, said: 'Uncertainties remain but, with early encouraging signs of better performance emerging in both the UK and the US, I am confident that this start will provide the platform for another year of growth.'
Shares in Tesco fell 2.65p to 404.55p in trading today.
View from the City
'Tesco is a huge global beast, but it is judged by its UK performance and the news that UK like-for-like sales were still slightly negative (by 0.1%), on an ex-VAT and ex-petrol basis, is disappointing,' said broker Arden Partners.
It noted a better outcome in food - although May was more subdued – and said the problem remained non-food.
'Tesco said that clothing had improved in the period, but it sounds like electricals and entertainment is still tough and it will be interesting to see how Tesco reallocates non-food space in the autumn when the new ranges come in,' the broker added.
Dave McCarthy of broker Evolution commented: 'Tesco's first quarter trading update does little to reassure that underperformance in the UK is set to improve in the near future, with UK like-for-like sales still negative.
'Asia like-for-like sales picked up, but Europe slipped backwards mainly due to weak sales in Ireland. We remain cautious on Tesco and the sector and expect continued share price underperformance against the backdrop of a difficult macro outlook.'
Tom Gadsby of asset manager Matrix said: 'Tesco claims to be outperforming the industry, but that is pretty marginal, and only refers to the last month of Kantar data.
'The shares have performed in line with the sector and the market in the past month, and outperformed both over the past three, which does not suggest that a weakish Q1 is priced in, so we would expect the shares to underperform from here.'
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