Tesco PLC (LSE:TSCO) said UK sales in the first quarter fell and cautioned "customers are facing unprecedented increases in the cost of living."
However, the UK's biggest supermarket said overall sales were up, boosted by growth at Tesco Bank, its wholesaler Booker and rising fuel prices at its petrol stations.
“We are seeing some early indications of changing customer behaviour as a result of the inflationary environment,” said Tesco chief executive Ken Murphy.
"Customers are facing unprecedented increases in the cost of living and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible."
In a brief outlook statement, the retailer added: "At this early stage in the year, our guidance ranges for profit and cash remain unchanged."
Overall sales for the 13 weeks ended 28 May 2022 were £13.57bn, up 2% on the equivalent part of last year and a 9.9% increase on a three-year like-for-like comparison.
The group revealed fuel sales surged to £2,035m, up 44% year-over-year as petrol prices hit record highs in the wake of Russia's war on Ukraine.
The supermarket chain said its year-on-year performance was “impacted by annualisation of lockdown last year, most notably in GM, clothing and online, partially offset by inflation”.
“Tesco was a pandemic winner and our experts expect it will continue to grow market share over the next 12 months,” said Alex Smith, global sector specialist at retail research at consultancy Third Bridge. “Tesco is attempting to be the last of the big UK supermarkets to pass on inflation costs to customers as it looks to gain market share and use its scale to manage costs.”
Growth in Europe, where its sales rose 9%, was driven by price increases but the company said it is working with suppliers to mitigate those costs.
Tesco's UK sales dipped 1.5% to £9.88bn, as the huge gains it made in online retail last year were unsustained.
Its online sales fell as the supermarket chain saw a shift in the pattern of consumer behaviour.
Online sales were down 14.5% year-over-year but 55% above where they were three years ago. Convenience sales grew 6.2%, highlighting the shifting trend in the market.
Tesco's distribution of Aldi Price Match and Low Everyday Prices products meanwhile grew 19% year on year.
Sales at food wholesaler Booker Group (LSE:BOK), which Tesco bought in 2017, grew to £2.1bn in the three months to 28 May, up 19.4% over last year's opening quarter.
Tesco Bank sales rose 38.8%, the company said, due to the acquisition of Tesco Underwriting and “recovery in card sales” and travel money.