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Tesco Profits Drop By 12%

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Supermarket giant Tesco reported a fall in group profits today as a return to sales growth in the UK was overshadowed by a downturn in Asia and Europe.

The UK's biggest grocer recorded a 12% decline in group pre-tax profits to £1.7bn in the six months to 25 August - its first profits fall in nearly 20 years.

There were tentative signs that the retailer's £1bn turnaround plan in the UK was starting to have some impact as like-for-like sales excluding VAT and petrol grew 0.1% in the final three months of the period, compared with a decline of 1.5% in the first quarter.

But as UK sales improved, like-for-like sales in Asia and Europe fell into the red in the second quarter as shopping hour restrictions hit trade in South Korea and the eurozone crisis impacted its performance on the continent.

Meanwhile, rival Sainsburys reported a 1.7% rise in like-for-like sales, excluding fuel but including VAT, in the first half of its financial year to 29 September.

Chief executive Philip Clarke said: "In April, I set out our plans to 'Build a Better Tesco' in the UK. We have been hard at work and I am encouraged by our customers' initial responses to the changes we have made - but there is much more to be done."

The supermarket said group sales were up 1.4% to £36bn in the half-year period, while in the UK total sales edged 2.2% higher at £23.9 million.

The UK reported a 12% slide in trading profit to £1.1 n, while its international trading profits slid 17% to £378m in the same period.

The UK like-for-like sales performance in the second quarter is Tesco's first positive result on this basis for six quarters and was driven by higher volumes.

Mr Clarke said profit in the UK had been impacted by the planned investment in the turnaround plan, which has seen 8,000 additional staff recruited, 230 stores refreshed in the first half and the launch of its Everyday Value range.

Over at Sainsbury's, the UK's third biggest supermarket chain, sales were driven by demand for its top-end Taste The Difference range, which is seeing near double-digit growth.

While Tesco is shifting the focus away from non-food sales, Sainsbury's has seen the sector grow at a pace around three times that of food, with sales of products such as jeans doubling year-on-year.

Sainsbury's also continued with its aggressive expansion plans, opening five supermarkets, 28 convenience stores and two extensions, adding 267,000 square feet to its estate over the quarter.

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