Tesco sales slow as consumers squeezed

Tesco said its first quarter like-for-like sales excluding petrol in its core UK market rose 3.5 per cent, slower than at the start of the year as clothing and furniture sales were hit by a consumer squeeze.

Group sales at the world's third largest food retailer rose 13.7 per cent in the 13 weeks ended May 24 and its international business grew by 26.6 per cent at actual exchange rates.

Finance and Strategy Director Andrew Higginson said growth in the core UK market, where Tesco is the nation's biggest retailer, was a "very good solid number", although it slowed from four per cent growth in the first five weeks of the year.

Tesco has forecast three to four per cent growth for the full year.

Still, "clearly the consumer is squeezed and being very cautious," Higginson told reporters.

"We are seeing non-food growing less than food for the first time in a long time. Some of the big ticket items, like furniture, are a bit slower than we would have liked," he said.

Shore Capital analyst Clive Black said overall Tesco's update was a "good statement" with international sales particularly strong.

But he noted "seemingly more cautious comments on the UK households, particularly with respect to non-food".

Mrs Higginson declined to give specific figures for the slowdown and said it was "hard to call" how long the tough trading environment would go on.

Stuart Rose, chief executive officer of Britain's largest clothes merchant Marks and Spencer, has said he could see a consumer slowdown running into 2010.

Mr Higginson also declined to comment on reports Tesco has agreed to buy total ownership of the personal finance joint venture it owns with RBS. Sources familiar with the matter have told Reuters RBS will sell its 50 per cent stake back to the supermarket for close to £1 billion.