Tesco admitted on Thursday that its profits would come in as much as £150m below expectations set down only last month after a tough end to the year for mainstream grocery retailers. Britain's biggest supermarket chain revealed a worse than expected 2.4% fall in sales excluding petrol at stores open for more than a year in the six weeks to 4 January. Underlying sales continued to fall in all Tesco's major overseas markets, contributing to a fall of 2.8% in like-for-like sales for the group over the period. Analysts had expected sales to fall by up to 2%. Tesco's chief executive, Philip Clarke , said: "Clearly Christmas was disappointing." He said that while sales online and in convenience stores had risen, the group's large out-of-town stores had seen sales fall, partly because of Tesco's own move to limit sales of less profitable electrical goods but also because of shoppers' changing habits. "It's tough because the market is tough and consumers are still feeling they don't have as much to spend," Clarke said. Analysts said the trading figures implied that shoppers had bought substantially less from Tesco, given food price inflation of about 2.5%. But Clarke said Tesco had taken action to limit price increases below the market in the past six weeks and hinted that Tesco's profit margin of 5.2% might come down. "In the last few weeks have made an investment to make our offer more compelling to customers," he said. Tesco said it expected full-year profit "within the range of current market expectations" but its shares fell almost 2% as the company admitted that those expectations were now between £50m and £150m below the reduced range set just a few weeks ago. Analysts now expect profits for the group of between £3.16bn and £3.42bn. The finance director, Laurie McIlwee , who is under pressure from shareholders over his handling of profit forecasts, said: "In hindsight we were a little too optimistic at the beginning of December. There has been further weakness across the whole of the grocery market which we didn't anticipate." Tesco is 21 months into a turnaround plan for its main UK business in which it has invested more than £1bn in store revamps, more staff, new product ranges and price cuts. Clarke insisted that Tesco was making the right moves to cope with the changing consumer marketplace. "There is a great global shift. We in Britain think it's only here but when I look around the world, people are shopping more locally, shopping online more and shopping a little more often," he said. He said Tesco would cut back space in 100 stores over the next eight or nine years, handing it over to other complementary retailers such as Sports Direct or businesses such as gyms and children's play centres. Mike Dennis , an analyst at Cantor, said that Tesco's performance was particularly poor given that it had introduced its new price matching promotion Price Promise , refurbished more than 100 stores and given a high-profile relaunch to its premium food range, Tesco Finest . "Our view is that management still has a lot of explaining to do over the poor relative UK sales performance, he said. "We believe this update will again show that Tesco has been unable to differentiate itself from the competition."
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