Tesco Suffers U.K. Sales Drop

Tesco PLC saw a fourth consecutive quarter of falling sales in its UK home market, though overall sales continued to grow.

The 0.9% decline in third quarter same-store sales in the U.K., excluding fuel and sales tax, was largely expected and marks a similar trend to the second quarter, despite the company investing heavily in lowering prices in the last 10 weeks.

In the face of rising bills and low wage growth, U.K. consumer spending on food has remained relatively resilient, with British Retail Consortium November same-store sales showing a 1.5% rise. However, even the supermarkets have had to clamor to attract wary shoppers with broad promotions, led in October by Tesco's Big Price Drop, a £500 million ($785.5 million) investment in reductions that has brought customers through the doors but shrunk the value of their baskets.

This has led to a larger volume of sales but smaller takings, which on balance has kept Tesco's overall sales static across the period. Finance Director Laurie McIlwee told reporters the company had been expecting this and was pleased with its performance. Still, lower sales values meant Tesco lost market share in the 12 weeks to Nov. 27, according to data published Tuesday by Kantar WorldPanel.

Tesco is foregoing its second-half trading profit to invest in promotions to lure back customers who have increasingly been shopping at low-cost competitors or other rivals. Its price cuts have prompted competitors to roll out their own promotions, adding to an already margin-eroding discount climate amid a retail sector that is bracing for a difficult Christmas.

Nonfood sales have suffered disproportionately as shoppers are forced to spend more on food, fuel and utility bills. Tesco has the largest exposure to nonfood sales of the grocers, which has added to its lagging behind its three main rivals, J Sainsbury PLC, Wm Morrison Supermarkets PLC and Asda Supermarkets, which is owned by Wal-Mart Stores Inc.

Tesco Chief Executive Philip Clarke said the company has seen an improvement in nonfood sales in the third quarter as revitalized ranges and new store displays are rolled out across its larger stores. He said like-for-like nonfood sales were still falling, but not by as much as the 5% seen in the second quarter.

While it struggles to regain the front foot at home, Tesco's international operations continue to grow, and overall sales across the group rose 7.2%, buoyed by rising petrol prices and the addition of new stores.

Tesco's international operations span several countries in Asia, where its Thailand operations were severely disrupted by the recent flooding, as well as Central Europe and a nascent business on the

The flooding hit Asia's usually stand-out sales, holding like-for-like revenue growth to just 0.8% from 3.9% in the previous quarter in the region, while European sales grew 0.9% on a same-store basis, up from 0.1% in the second quarter. U.S. sales were up 12% on a same-store basis in the third quarter.

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