Equity income favourite Tesco reports Q1 sales fall

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Supermarket giant Tesco – a favourite holding of UK equity income managers – has reported a fall of almost 1 per cent in UK sales over the first quarter, leading to the company’s shares falling.

Tesco’s first quarter interim statement shows like-for-like sales, excluding VAT and petrol, declined by 0.9 per cent over the 13-week period. The group is currently refurbishing its stores to improve the shopping experience and this this, combined with the fall out of the horse meat scandal, is behind the fall in UK sales.

Like-for-like sales across the whole group fell by 2.2 per cent, excluding petrol, amid “challenging conditions”. The supermarket’s European sales were down 5.5 per cent while they declined 3.8 per cent in Asia.

The company is owned by a number of UK-focused fund managers, with James Lowen and Clive Beagles’ £1.8bn JOHCM UK Equity Income fund allocating 3 per cent of their portfolio to the stock.

It can also be found in the top 10 holdings of Alex Odd’s £1.4bn M&G Dividend fund, Nick Purves’ SJP Equity Income fund and Ciaran Mallon’s £550m Invesco Perpetual Income and Growth fund.

Tesco chief executive Philip Clarke says: “We set out our approach for growth and returns for the group, including a number of appropriate and realistic objectives for the years ahead and we have started the year on track, despite a continued difficult economic environment for consumers.

“This is notwithstanding our planned work on general merchandise, which has held back sales in the UK, and a small but discernible impact on frozen and chilled convenience food sales due to the customer response to equine DNA being detected in four products.”

Tesco’s share price was down 1.77 per cent to 358p in the first 15 minutes of trading on the FTSE 100 today.