Tesco's share price suffered its biggest one-day fall in four years, partly down to consumers being hit by higher borrowing costs and spending less on non-food products. Even worse, the sales figures were buttressed by a 1.8% increase in food price inflation. Tesco is also encountering more aggressive competition from Sainsbury's, Asda and Morrisons.
Despite this under-performance Tesco has increased its share of the UK grocery market to 31.6% from 31.4% over the last three months, according to TNS.
Competition is hotting up, with the declaration of a price war between Tesco and Asda, while Morrisons has joined in by slashing prices on 2,000 products.
In contrast with the UK market, overseas sales for Tesco boomed by nearly 25%.
The retailer is opening its first US stores in November, in Las Vegas, Los Angeles, Phoenix and San Diego.
Sainsbury's sales outpace Tesco
Sainsbury's boss Justin King reckons customers are cracking down on unnecessary spending as borrowing costs rise.
Despite this, sales at Sainsbury's rose by 5.1% in the last three months - outpacing Tesco, but down on the previous quarter rise of 5.9%. Over the last two years, Sainsbury's has increased sales by 10.8%.
The retailer is still seen as a bid target by the market, with Qatari investment house Delta Two rumoured to be about to mount a £10.4m bid by way of a tender offer, which needs only 50% of shareholder support to succeed.
The market is hoping that Marks & Spencer will be the white knight to ride to the rescue if a bid is launched. M&S boss Stuart Rose ruled this out when a private equity consortium launched a bid last March, but has not denied
itself the possibility of returning to the fray.
evro announces profit warning
Devro, the world's biggest sausage skin maker, upset the market by announcing a profit warning. The timing was inauspicious as Devro's biggest shareholder, Irish entrepreneur John Magnier, sold 21 million shares - a 13% stake - in the company. The profit warning stems from higher collagen prices in the US and the high expense of bringing in new technology at one of Devro's factories in Scotland.
John Magnier, operating through his Swiss vehicle Acomita Investment, was reported to have made a £244m offer for Devro last January but broke off his talks in April after failing to reach agreement with Devro's pension fund trustees.