Tesco is blaming "further weakness" in the UK grocery market for a fall in sales over Christmas.
The UK's biggest supermarket chain said sales at British stores open over a year, excluding fuel and VAT, fell 2.4% in the six weeks to January 4.
However, Tesco generated £450m from internet shoppers over the six week Christmas period, up 14% on a year earlier.
The company - led by chief executive Philip Clarke - is 21 months into a turnaround plan for its main UK business that has seen over £1bn invested in store revamps, more staff, new product ranges and pricing initiatives.
Mr Clarke confirmed the investment amid plunging sales and complaints it had taken its eye off the ball in the UK, focusing too heavily on its foreign operations - now sold off in the US.
It is scrapping more than 100 major UK store developments and focusing growth on convenience stores and its online offering, while also looking to transform stores into family-friendly retail destinations.
The transformation demonstrates the extent of the price pressure placed on Tesco, Sainsbury's, Asda and Morrisons by major discounters such as Aldi and Lidl who are eating into the 'big four's' market share.
Morrisons reported a 5.6% decline in sales over Christmas while Sainsbury's barely grew its sales on a like-for-like basis.
Mr Clarke said that with household incomes growing slower than inflation, families feel they have less to spend than they did last year and in previous years.
He added: "While families still treat themselves and parents always want to give their children a good Christmas, budgets remained constrained and optimism around the economy and house prices led to slightly more borrowing on credit cards."
Its share price fell 3.4% in early trading on the FTSE 100 in response to the trading update.
The market reaction also followed a downgrade to the chain's forecast for full year group profits - blaming further weakness in the grocery market and a greater than expected shift of general merchandise in the industry to online.
Chief financial officer Laurie Mcllwee told reporters: "The range has moved (down) at the top end by about £50m and at the bottom end it has moved nearly £150m pounds down on the range.
"There are a new set of forecasts in the market that are more up to date with these very big changes and more appropriately reflect where we think our eventual outcome will be."
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