Tesco posted a second consecutive fall in quarterly UK sales and missed forecasts, hit by a drop in sales of non-food items like electrical goods as shoppers struggled with higher household bills. The world's third-biggest retailer said on Tuesday sales at British stores open over a year fell 0.1 percent, excluding petrol and changes in VAT sales tax, in the 13 weeks to May 28, its fiscal first quarter.
Strong demand for its upmarket food range - as Britons cut back on restaurant meals - helped Tesco do better this time than the previous quarter's 0.7 percent decline. But the slide undershot a Reuters poll forecast for a 0.6 percent increase in sales.
Weak consumer spending in Britain is raising fears about the strength of the country's economic recovery and prompting questions about the scale of the government's cutbacks in its haste to slash its budget deficit.
"Nothing's getting worse. (But) it's not getting significantly better," Tesco finance director Laurie McIlwee told reporters on a conference call. "The biggest issue that they're (shoppers) having to deal with in terms of their own budgets is fuel prices and utility prices", he said, noting the cost of petrol has surged over 40 percent in the past two years to about 136 pence a litre. Official data on Tuesday showed UK inflation held at a 2-1/2 year high in May.
Stores focused on discretionary purchases are being hardest hit by Britain's current economic environment, with household goods group Home Retail reporting a plunge in sales at its Argos chain last week. Tesco, which makes about two thirds of its sales and profits in Britain, said like-for-like non-food sales fell about 5 percent, with a drop in demand for electricals goods outweighing a better performance in clothing and strength in toys and leisure goods.
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