TESCO reported worsening sales as electronics and entertainment products were hit hard amid tough trading conditions.
The supermarket giant, which last week launched its £500m Big Price Drop campaign, said like-for-like sales excluding VAT and petrol fell by 0.9% in the three months to August 27 – a deterioration on the 0.1% decline in the previous quarter.
Despite the worsening picture in the UK, the group recorded a 6.2% rise in underlying half-year profits to £1.9bn following a strong performance in Asia. Sales rose by 8.8% to £35.5bn.
Sainsbury’s, which also provided an update on trading, revealed that like-for-like sales rose by 1.9% in the 16 weeks to October 1 – the same rate as in the previous quarter. Unlike Tesco, its figures include VAT.
Tesco’s worst UK sales performance in 20 years highlights the squeeze on consumer spending 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, according to Tesco.
But its performance was dragged down by weakened demand for non-food, particularly electronics and entertainment items, two of its largest product groups.
However, Tesco’s total UK sales, which include VAT, petrol and the benefit of new store openings, grew by 7.1% to £23.4m, which it said was faster than the market as a whole.
Trading profits from its UK business rose by 4.5% to £1.3bn, but it expects them to flatten out in the second half of its financial year.
The group’s Big Price Drop has seen it reduce the cost of 3,000 items in a bid to win back shoppers and arrest recent declines in its market share, although it has been accused of not being bold enough.
Sainsbury’s hailed a “good” performance despite a “tough consumer environment”. Total sales rose by 7.8%, lifted by 20% growth at its 400 Sainsbury’s Local convenience stores.
Chief executive Justin King said general merchandise and clothing continued to do well, with sales “well ahead” of the main grocery business.