Tesco sales decline ahead of key Christmas period

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Supermarket Tesco reported a sharp drop in third-quarter like-for-like sales on Wednesday, as the retailer struggles to woo cash-strapped consumers ahead of the key Christmas trading period.

The group said like-for-like sales, excluding fuel, decreased by 1.5 percent in the third quarter in its U.K. home market. Like-for-like sales were down 4.0 percent in Europe and decreased by 5.1 percent in Asia.

In a statement, the group's chief executive, Philip Clarke, said the sales decline was due to a weaker grocery market. "Continuing pressures on U.K. household finances have made the grocery market more challenging for everyone since the summer and our third quarter performance reflects this."

"Overseas, the near-term trading environment also remains tough, most notably in Thailand, but we have been able to drive a better performance in Poland and Turkey following the actions taken in the first half."

Despite the decline, Clarke said Tesco was confident that its strategic priorities could drive long-term value and returns.

The group added in its statement that U.K consumers were still managing the effects of an "unprecedented period of declining real incomes and a higher cost of living," noting the average spending power of a typical U.K. household is around 10 percent below its 2007 peak, in real terms.

The latest earnings release comes after a turbulent year for the retailer which wrote down the value of its global operations by $3.5 billion and announced plans to exit the U.S earlier this year.

The supermarket -- which operates in 12 countries and employs over half a million people worldwide -- has also seen its success in the U.K., decline over the past year as competition for the price-conscious consumers increases.

While its main rival J Sainsbury saw underlying sales increase 1.5 percent in the second quarter in 2013, Tesco's underlying sales were flat in the same period.

"Make no mistake," Joshua Raymond from City Index said following the sales report, "this earnings report will do nothing to prevent the degree of caution and concern many shareholders have for the performance of the UK's largest retail firm."

"Tesco has fallen sharply below the performance of rivals such as Asda and Sainsbury's which continue to beg the question whether they themselves are outperforming the market or if Tesco is underperforming it. The big question now is what will the vital christmas trading period bring the troubled retailer?"

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt