Tesco in UK sees sales decline in ‘most challenging conditions for a generation’
Published 05/10/2011 | 08:36
TESCO reported worsening sales declines in Britain today as electronics and entertainment products were hit hard amid the most challenging conditions for a generation.
The supermarket giant, which last week launched its £500m Big Price Drop campaign in the UK, said like-for-like sales excluding VAT and petrol fell 0.9pc in the three months to August 27, a deterioration on the 0.1pc decline in the previous quarter.
Despite the worsening situation in the UK, the group recorded a 6.2pc rise in underlying profits to £1.9bn in the half-year, boosted by a strong performance in Asia. Sales rose 8.8pc to £35.5bn.
The UK sales performance - Tesco's worst for 20 years - highlights the squeeze on consumers' spending power in Britain as wages fail to keep up with rising prices.
Tesco admitted its like-for-like growth was slower than planned but claimed it was "a robust performance in the most challenging retail market we have seen for a generation".
Like-for-like sales in food were positive and were showing signs of improvement, it said, but its performance was dragged down by weakened demand for non-food, particularly electronics and entertainment items - two of its largest product groups.
However, its total UK sales, which include VAT, petrol and the benefit of new store openings, grew 7.1pco £23.4bn, which it said was faster than the market as a whole.
Trading profits from its UK business rose 4.5pc to £1.3bn but it expects them to flatten out in the second half of its financial year.
Tesco promised that there will be "more change to come" as it continues to improve its offers and store standards but warned sales would not pick up immediately.
The group confirmed it will postpone the expansion of Tesco Bank until next year as it makes sure its systems work correctly before it launches mortgages and current accounts.
This reduced profits at the banking arm by 65.9pc to £44m, although revenues increased 10.1pc to £522m, with growth in savings, credit cards and motor insurance customers.
While Tesco is going through hard times in Europe, overseas the picture was brighter.
Its Asian business saw sales rise 11.9pc to £5.6bn, with profits up 18.3pc to £292m, driven by strong growth in China and Thailand.
However, it recently put its Japanese business up for sale because it did not think it was "scalable".