June 10, 2012 / 11:03 PM / in 8 years

Tesco sales seen lower in first quarter

LONDON (Reuters) - Tesco Plc (TSCO.L), Britain’s biggest retailer, is set to report a fall in UK underlying first-quarter sales on Monday, showing its recovery plan following January’s shock profit warning is taking time to gain traction.

Analysts are forecasting sales down between 1 and 2 percent at British stores open more than a year, excluding fuel and VAT sales tax, in the 13 weeks to May 26, according to a Reuters poll.

That compares with a decline of 1.6 percent in the fourth quarter to February 25, including a fall of 2.3 percent over the Christmas trading period that prompted the retailer’s first profit warning in over 20 years.

Tesco’s first quarter misses any benefit to food sales of celebrations to mark Queen Elizabeth’s Diamond Jubilee and the late spring bank holiday, which both fell in the company’s second quarter.

The sales outcome also reflects a tough comparative, as the wedding of Prince William last year and the spring bank holiday fell in the first quarter.

“While we think there probably has been some underlying sales improvement, aided by the very high level of money-off coupons, we think April was weak, impacted by (wet) weather, and the calendar will not unwind until Q2,” said analysts at Credit Suisse.

Last month Tesco CEO Phil Clarke slashed expansion plans for the retailer’s main British chain and said he would spend over 1 billion pounds ($1.6 billion) on improving stores and online shopping to stem a steady decline in UK market share.

He said the UK business needed more staff, smarter stores, lower prices and better products, after becoming too focused on cutting costs and boosting margins. But he did not give a timetable for the plan to deliver better sales.

Clarke last month passed up an annual bonus of about 372,000 pounds ($588,000) after the company’s poor performance in its home market.

Tesco, the world’s third-largest retailer with over 6,000 stores in 14 countries, accounts for about one in every 10 pounds spent in British shops and makes over 70 percent of its trading profit in the UK.

It has suffered more than rivals such as Asda (part of Wal-Mart Stores Inc (WMT.N)) and Sainsbury Plc (SBRY.L), in part because it sells more discretionary goods like homewares, where shoppers have cut back most in the economic downturn.

Tesco shares, which have lost nearly a quarter of their value over the last six months, closed at 303 pence on Friday, valuing the business at 24.4 billion pounds.

Sainsbury, Britain’s No. 3 grocer, will update on its first quarter on Wednesday. ($1 = 0.6420 British pounds)

Reporting by James Davey; Editing by David Holmes

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