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Tesco to post weakest UK sales for two decades

Supermarket giant Tesco is expected to post its weakest underlying UK sales for about 20 years on Wednesday, laying bare the depressed state of spending in the grocery sector.

On the same day, its rival Sainsbury's will also unveil anaemic figures as it and other supermarkets suffer from falling sales volumes.

Tesco is forecast to post a fall in UK like-for-like sales, excluding fuel and VAT, of between 0.5 per cent and 2 per cent over the 13 weeks to 27 August, compared with an actual fall of 0.1 per cent in the previous quarter.

Clive Black, an analyst at Shore Capital, said that Tesco had enjoyed positive like-for-like sales volumes for the "best part of 20 years". He added: "Tesco is going through a period of pretty unfamiliar territory with sustained volume declines, reflecting what is happening in the wider grocery sector."

In fact, sales volumes in the industry have declined for eight out of the first nine months of 2011. "The late 1980s and early 1990s is the last time we have seen this type of stuff," Mr Black said.

The weak UK underlying sales performance at Tesco illustrates why the grocer launched a £500m campaign to slash prices on 3,000 products including milk, bread, fruit and vegetables last week. But Tesco, which has operations in 14 countries, is forecast to grow its trading profit by at least 7 per to £1.81bn over the 26 weeks to 27 August. This will be driven by a strong performance in countries including South Korea and Thailand.

Sainsbury's is expected to post sluggish underlying sales growth, excluding fuel and VAT, of 0.7 per cent for the 16 weeks to 1 October, according to consensus forecasts.

Meanwhile, general merchandise retailers will have struggled to sell winter clothing during the heatwave, which is expected to continue into next week in the South.

Christine Cross, the chief retail adviser to PwC, said: "The sun couldn't have come at a worse time for those retailers who viewed Thursday's rent quarter day with trepidation." All retailers were due to pay their fourth quarter rent two days ago.