Tesco, the world's fifth largest retailer, reported a slowdown in its core UK sales growth in the first quarter and said it expected a "tougher year" after UK interest rate hikes made consumers wary.
The figures, at the lower end of analyst expectations, caused shares in Britain's biggest supermarket group to fall more than 3 percent in early trade dragging the DJ Stoxx index of European retailers lower.
Tesco, where a third of Britons buy their groceries, reported a 4.7 percent rise in its UK like-for-like sales excluding fuel in the 13 weeks to May 26, a slowdown from 5.8 percent growth in the previous quarter. Its sales from 11 countries outside Britain rose 24.6 percent at constant exchange rates with its Chinese business consolidated for the first time.
Finance and Strategy Director Andrew Higginson said it would be a "tougher year" because of growing caution among British consumers after four interest rate hikes in 10 months.
Tesco had seen a "little bit" of a slowdown in non-food, although it was still outperforming the market, he added. "You are going to see a more cautious consumer. Interest rates in particular have had an impact," Higginson said in a telephone interview. British rival J. Sainsbury, which is half the size of Tesco, is expected to show stronger growth of around 5.5 percent when it reports trading on Wednesday.
Seymour Pierce analyst Andrew Wade called it "a solid, if more cautious, trading update" with UK growth slipping back slightly as expected while international continues strongly.
Tesco was "pressing on" with its 156 million pound bid for Britain's Dobbies Garden Centres, but it was ready to "react accordingly" should talk of a rival bid from entrepreneur Tom Hunter prove correct, Higginson said. "We are the only people bidding for Dobbies at the moment so we will be posting our offer documents in the next couple of days," he said.
Tesco said both cash flow and capital expenditure were in line with budget and it was on track to achieve store opening targets. It was also on track to open more than 7 million square feet of new selling space in International.
Its sales in Asia grew 32 percent at constant rates in the first quarter. Higginson said Tesco was "pleased with the way things are going" for its anticipated entry to the United States in November with its "Fresh & Easy" convenience stores.
When asked whether Tesco would be interested in acquisitions in Turkey after supermarket group Migros was put up for sale on Monday, Higginson said: "We are always looking for stores".
Tesco was expected to report a 5.2 percent rise in like-for-like sales, slowing from 5.8 percent in the fourth quarter, a Reuters survey of six analysts forecasts showed. Their estimates ranged from 4.6 percent to 5.8 percent.
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