Tesco sales slide continues, CEO warns on deflation

A Tesco supermarket in Glasgow, Scotland.
Jeff J Mitchell I Getty Images

Tesco, the world's second biggest supermarket chain by sales, warned that the U.K.'s retail landscape is still tough as it reported slightly better-than-expected sales for the first quarter Friday.

The company's share price rose by around 3 percent in early London trading on the figures.

Dave Lewis, the supermarket's chief executive, who was parachuted in to the retailer in 2014 after one of its worst ever years, told reporters: "Nobody said this was going to be quick or easy."

Tesco is fighting a price war to fend off pressure from discounters Aldi and Lidl in the U.K., and has slashed prices on 700 lines.

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"We're gaining shoppers across the board. We're trying to improve the offer," he added.

"More people were buying more things at Tesco, and for us that's an important part of recovery."

Sales at British stores open over a year fell by a better-than-feared 1.3 percent over the 13 weeks to May 30, compared to a fall of 1.6 to 3 percent forecast by analysts. Niamh McSherry, research analyst at Deutsche Bank, described the performance as "reassuringly steady".

Lewis declined to comment on questions about asset sales, including the company's South Korean operations and its Dunnhumby market research firm, which are expected as part of the turnaround plan, and said he would comment when something was "clear, firm and agreed".

He warned that the supermarket expects further deflation in pricing and volatility as the up to five-year turnaround plan continues.

A Tesco supermarket in Glasgow, Scotland.
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The supermarket's board will meet shareholders later at its annual general meeting, where there may be a significant vote against payouts to Philip Clarke, the former chief executive, and Laurie McIlwee, former finance director, who presided over several of its most disastrous years, including an accounting scandal which emerged last year.

One key part of its turnaround will be what to do with the sites of nearly 50 planned new supermarkets which have been mothballed. Lewis declined to comment specifically on what would be done with them, but said the supermarket was looking at "alternative uses".

"There are a lot of things that could still improve but we feel more in control than we did a year ago," Lewis, who is close to a year through a 4-5 year turnaround strategy, told reporters.