Tesco growth slows as consumers cut back

Slowing UK growth at Tesco weighed on the supermarket group’s shares on Tuesday as the bellwether retail stock reported core like-for-like sales growth at the bottom end of analysts’ expectations and a weaker performance in non-food.

Tesco’s like-for-like sales, excluding fuel, rose 3.5 per cent in the 13 weeks to May 24, “solidly in our 3-4 per cent planning range”, said Andrew Higginson, finance director.

However, Mr Higginson acknowledged that higher fuel bills and bigger mortgage repayments were taking their toll on consumer spending and some customers were being tempted to discount rivals with the cheapest food offers. “Asda and the discounters are having a moment in the sun,” Mr Higginson said.

Most analysts pointed out that the trading figures were far from disastrous for Tesco, with 13.7 per cent first-quarter sales growth across the group. But the 3.5 per cent like-for-like growth was slower than the 4 per cent in the first five weeks of the period and well below the 7 per cent recorded by rival Wm Morrison last week.

Mr Higginson said that non-food – which at Tesco includes everything from clothes to digital cameras – had seen lower growth than food “for the first time in a long while”. At constant currency rates, the international business saw sales growth of 13.9 per cent.

Jonathan Pritchard, of Oriel Securities, said the numbers of most concern were Tesco’s profit margins, which are not reported in quarterly trading statements. He said: “Tesco’s efforts to ‘help customers spend less at a time of pressure on household budgets’ will translate to margin pressure for the whole sector.”

Lucy Neville-Rolfe, Tesco corporate affairs director, said the retailer was paying more attention to “more keenly priced fruit and veg” and “value lines” to shore up market share, but added: “Our track record is very much in keeping margin flat.

“We’ve got a good track record if you look back to the early 1990s, to 1998 in central Europe, to what we did when the discounters arrived . . . There’s a lot of ‘every little helps’.”

Shares in Tesco fell significantly before recovering to end down 10.1p at 391.8p.