Tesco figures worst for two decades
Tesco has revealed its worst sales performance in two decades after shoppers tightened their belts and rivals attacked its market dominance.
The grocery giant said sales excluding new store space, VAT and petrol were down 0.9% in the three months to August 27, with electronics and entertainment products particularly badly hit.
The performance was broadly in line with City forecasts but was still overshadowed by rival Sainsbury's, which impressed analysts by continuing to grow sales over the same period.
Tesco launched its fightback last month with £500 million of price cuts after seeing its market share shrink from 30.8% to 30.4% in recent weeks as it battles to stimulate demand during the toughest conditions "in a generation".
Despite the worsening situation in the UK, the group recorded a 12% rise in underlying profits to £1.9 billion in the half-year, boosted by a strong performance in Asia. Sales rose 9% to £35.5 billion.
Dave McCarthy, an analyst at Evolution Securities, said: "This is not a bad performance from Sainsbury's and puts it ahead of Tesco but behind Morrisons."
Tesco chief executive Philip Clarke, who took over from Sir Terry Leahy in March, said sales growth was slower than planned but was still "a robust performance".
Like-for-like sales in food were positive in the first half, but its performance was dragged down by a 0.9% decline in non-food sales, particularly electronics and entertainment items - two of its largest product groups.
It plans to revitalise non-food sales by improving its range, pricing and promotions.
Total UK sales, which include VAT, petrol and the benefit of new store openings, grew 7% to £23.4 billion, which it said was faster than the market as a whole. UK trading profits rose 5% to £1.3 billion but are expected to flatten out in the second half of its financial year. It still plans to create 7,000 jobs in the UK this year through its store expansion plans.