Supermarket chain Tesco Plc. (TSCDY.PK, TSCO.L) Wednesday reported growth in group sales for the first quarter, but like-for-like sales in the U.K. declined, as non-food category was hit amid disproportionate exposure to consumer electronics.
Group sales for the thirteen weeks ending May 25 increased 1.8 percent, including petrol. Sales were flat at constant rates.
Excluding petrol, group sales increased 2.7 percent at actual exchange rates and grew 0.7 percent at constant rates.
In the U.K., total sales including Value Added Tax or VAT and petrol grew 0.1 percent and the growth was 1 percent excluding petrol, despite a subdued market. Like-for-like sales, excluding VAT and petrol, decreased 1 percent in the quarter.
Performance in every food category was stronger in the first quarter than in the last two months of the prior year, except frozen foods and chilled convenience meals which picked up in recent weeks.
The firm experienced a small but discernible impact on frozen and chilled convenience food sales after equine DNA was detected in four of its frozen beef products.
Since January, Tesco completed nearly 1,500 tests on its own-brand meat ranges, which led to the identification of four products contaminated by equine DNA. The four products were withdrawn, reformulated and reintroduced, with new suppliers, Tesco added.
Tesco said online grocery continues to be the fastest growing channel in the market and the retailer's own sales growth continues to outperform.
Like-for-like sales growth in non-food was more affected in the first quarter than in the preceding fourth quarter, driven by disproportionate exposure to consumer electronics and as a result of implementing accelerating general merchandise strategy, due to the shift of business from low-margin, low-growth categories to higher-margin, higher-growth categories.
Tesco said it is working towards relaunching a new core range of general merchandise in its smaller format stores within the coming months. This will be followed by more extensive repurposing of general merchandise and electrical space in larger stores starting later in the year.
Clothing again delivered a strong performance, with the F&F brand boosted by the successful industry launch of the Autumn/Winter 2013 collection and the announcement of plans to extend the franchising of F&F to more markets in central Asia and the Middle East.
Net new space contributed 1.9 percent to sales growth in the first quarter and Tesco said it is on track with its opening program for the full year.
According to the retailer, consumers in international markets continue to face challenging conditions, particularly in Europe, continuing the trend seen at the end of the preceding quarter.
Excluding petrol, total sales in Europe were up 0.1 percent and declined 3 percent at constant rates, amid consumer caution in all markets. The impact of external pressures increased in Ireland, with a significant reduction in consumer sentiment and spending, following the announced introduction of a Local Property Tax on residential properties.
Philip Clarke, CEO, said, "Conditions outside the UK remain challenging and we have broadly maintained our performance from the fourth quarter of last year. Whilst we are not expecting economic conditions to improve in the near term, we have a customer-focused plan for the year in each of our markets which takes this into account..."
Total sales in Asia grew 10.9 percent and advanced 2.8 percent at constant rates. Like-for-like sales declined 3.8 percent, driven by the impact of the regulatory restrictions on opening hours in Korea. Business in China was affected by consumer concern over the bird flu crisis and weaker demand for pork products after a national food safety scare.
Tesco said its process to exit the U.S. continues on track.
TSCO.L is falling 0.9 percent in early trade at 380.00 pence.
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