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Tesco blames horsemeat scandal and fall in big-ticket electrical sales after UK sales slump


Tesco says the horsemeat scandal and dire trading on big-ticket electricals is responsible for a decline in its UK sales.

The news is a blow for its £1 billion plan to revitalise its stuttering domestic operation.

The grocery giant also suffered falling sales in many of the 12 countries in which it operates overseas, although it said it was in "advanced discussions" to sell its failed US business, Fresh & Easy, to undisclosed third parties.

Tesco invested about £1 billion in its British business last year and appeared to have turned a corner after delivering underlying sales growth in its third and fourth quarters. But its UK like-for-like sales fell by 1 per cent in the 13 weeks to May 25, driven by tanking demand for consumer electronics, such as big TVs. This leaves it trailing Sainsbury's 3.6 per cent and Asda's 1.3 per cent growth but ahead of Morrisons' 1.8 per cent sales fall.

Tesco admitted it was hit by becoming embroiled in the horsemeat scandal, although it said that only four products out of 1,850 contained traces of equine DNA. Tesco chief executive Philip Clarke said the contamination had a "small but discernible impact" on its sales of frozen beef and chilled readymeals but said these categories had now almost recovered to previous levels.

Clarke, who took the helm in March 2011, said its core grocery business had remained in growth, adding it was already replacing much of the space previously allocated for consumer electronics in its 850 biggest stores with more food, stationery, homewares and clothing. The Tesco lifer said: "The general merchandise changes are a top-line drag, not a bottom-line drag. We are exiting categories that don't generate any substantial profit for us."

Tesco's like-for-like sales in Asia fell by 3.8 per cent, while they tumbled by 5.5 per cent in central Europe. Dan Coen, a director at advisory firm Zolfo Cooper, said: "Philip Clarke's turnaround plan is yet to look convincing, but it is still early days."