Tesco's UK performance hit by 'subdued' shoppers

The soaring cost of petrol and rising utility bills have forced consumers to divert spending away from "their normal shopping", Tesco said yesterday, as it posted disappointing domestic sales for its first quarter.

Tesco's UK sales excluding fuel and VAT fell 0.1 per cent in the 13 weeks to 28 May, it said yesterday, the second consecutive quarterly decline. The results missed analyst expectations of 0.6 per cent growth.

Philip Clarke, Tesco's chief executive, said the company admitted that "consumer sentiment in many of our key markets remains subdued" but added that the company had made a "good start to the new financial year".

He added that there were "encouraging signs of better performance emerging in both the UK and the US".

The biggest hit came in the company's non-food business as the market conditions "continue to remain unhelpful". The company added that food and grocery sales had performed well, with its own-brand products up 10 per cent.

Graham Spooner, an investment adviser at the Share Centre, said that the popularity of its brands showed "consumers feeling the squeeze are treating themselves at home rather than dining out".

The results, Mr Clarke's first since taking over from Sir Terry Leahy, were bolstered by a strong performance abroad. Sales in Asia were up 8.6 per cent, with a particularly strong showing in Thailand. Europe also increased revenues by 9.5 per cent, excluding petrol, with the Czech Republic and Slovakia "particularly pleasing".

Philip Dorgan, an analyst at Panmure Gordon, said: "This is almost a 'nothing to see' announcement... because it is too early in Phil Clarke's tenure to be categoric one way or another."

He warned that "one poor season in clothing usually leads to another", adding there would be tough comparisons over the summer with the sales made during the World Cup last year. This comes as rival J Sainsbury prepares to report today, with Panmure expecting a pick-up in like-for-like sales growth.