Tesco's UK sales fall in Christmas period

LONDON, Jan 9 (Reuters) - Tesco (Xetra: TCO.DE - news) , the world's third biggest retailer, posted another heavy drop in underlying sales in its main British market in the Christmas trading period, adding to pressure on management to end a run of poor results.

The firm, which trails France's Carrefour (Paris: FR0000120172 - news) and U.S. No. 1 Wal-Mart in annual sales, is 21 months into a turnaround plan for its main UK business that has seen over 1 billion pounds ($1.65 billion) invested in store revamps, more staff, new product ranges and pricing initiatives.

Despite the changes the firm said on Thursday sales at British stores open over a year, excluding fuel and VAT sales tax, had fallen 2.4 percent in the six weeks to Jan. 4, towards the lower end of expectations.

Analysts had forecast a range of down 0.5-2.5 percent and a third quarter decline of 1.5 percent.

Tesco said it expected to report a full year group trading profit within the range of current market expectations, which it said ranged between 3.16 billion pounds and 3.41 billion pounds.

Trading improved in Europe but remained difficult in Asia.

"We continued to invest in the most compelling offer for the tens of millions of customers who chose to shop with us this Christmas, but further weakness in the grocery market as a whole continued to impact our performance in the UK," Chief Executive Philip Clarke said.

Though Britain's economy is improving, major grocers are finding the going tough despite their focus on essential goods, as consumers' disposable incomes remain under pressure by wage rises not keeping up with inflation.

Analysts reckon all of the UK's so called "big four" grocers, which also includes Wal-Mart's Asda, J Sainsbury (Berlin: SUY1.BE - news) and Morrisons, lost market share and saw like-for-like sales volumes decline in the run-up to Christmas, reflecting a subdued overall market and increased promotional activity.

Morrisons also posted a big drop on Thursday with like-for-like sales excluding fuel down 5.6 percent in the six weeks to Jan. 5 and the firm now expecting full-year underlying profit towards the bottom of market expectations.

Sainsbury's eked out a 0.2 percent rise in third quarter like-for-like sales on Wednesday.

The big four are also being squeezed by hard discounters Aldi and Lidl, who both enjoyed record trading at Christmas, and upmarket grocers Waitrose and Marks & Spencer (Other OTC: MAKSF - news) , which on Thursday posted like-for-like food sales up 1.6 percent in its third quarter.

Tesco has suffered more than many rivals because it has traditionally sold a higher proportion of large ticket non-food items, such as widescreen TVs, where shoppers cut back the most in the downturn.

Chief Executive Clarke is now re-focusing the firm's non-food offer on higher margin categories like clothing and homewares but the process has been slow, reflecting the scale of the firm's over 3,100 UK stores. He is also investing heavily in digital services, local convenience stores and click-and-collect points.

Tesco shares, down 6.6 percent over the last year, closed Wednesday at 328.30 pence, valuing the firm at 26.5 billion pounds. ($1 = 0.6072 British pounds)