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Tesco Sales Rise 3.5% But Non-Food Sales Slow

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

Tesco shares fell 2.5 percent to close at 391.80 pence.

Group sales at the world's third largest food retailer rose 13.7 percent in the 13 weeks ended May 24 and its international business grew by 26.6 percent 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 4 percent growth in the first five weeks of the year.

Tesco has forecast 3 to 4 percent 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".

Hard to Call

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

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 percent stake back to the supermarket for close to 1 billion pounds ($1.96 billion).

Tesco has a market share equal to a third of Britain's grocery sector, more than double the market share of its nearest competitors Asda and J. Sainsbury combined.

National data released on Tuesday showed British retail sales grew at their fastest rate in four months in May as warm, sunny weather encouraged consumers to spend on new clothes and summer food and drink.

It was the strongest reading since January this year and one of the few pieces of data not to paint a gloomy picture of the British economy in recent weeks.

Britain's biggest pharmacy chain, Alliance Boots, also showed signs of defying a consumer downturn on Tuesday reporting that cost cuts and strong sales of its No7 cosmetics brand helped it to post a 20 percent rise in profit in its first year as a private company.