Turnaround at Tesco to take longer as quarterly sales fall

The group said consumers are being careful as disposable income continues to fall.

Chief executive Philip Clarke said: “Confidence isn’t getting any worse, but it isn’t getting any better. The great hope would be that fuel prices are going to come down.

“A tank of petrol is still £70 now and it was £45 two years ago, an amazing dent in household budgets.”

Tesco reported a 1.5 per cent fall in underlying UK sales in the 13 weeks to May 26, but this did not include the period around the Queen’s Diamond Jubilee when it reported a record £1bn sales, its biggest ever week outside Christmas.

Tesco sold nearly one million packs of party and picnic food and nearly two million sausage rolls.

The first quarter sales were in line with analysts’ expectations and marginally better than a 1.6 per cent decline in the fourth quarter of the previous year.

Despite the sales decline, Tesco said its £1bn turnaround, which has seen it revamp 100 stores and recruit 4,300 extra staff, is beginning to gain traction as it competes more convincingly with rivals.

Mr Clarke said: “Our customers are seeing the evidence of the changes we’re making and they’re telling us they like what they see.”

Tesco kept its profits outlook for the year ahead unchanged, reassuring investors after the chain’s first profits warning in 20 years in January.

Analyst Clive Black at Shore Capital said: “We see Tesco UK as toughing it out a little more effectively than it was.”

But he said it will take at least two years for the turnaround to be completed.

Tesco shocked investors in January with its first profit warning in over 20 years, saying it needed to invest heavily to stem a steady decline in UK market share.

In April, Mr Clarke cut back expansion plans and said he would spend over £1bn on improving stores and online shopping in a bid to reverse a decline in market share.