Tesco’s half-year profits tumbled by almost a quarter after underlying sales declines in the UK and every one of its overseas markets.
Once the driving force behind the group, its European and Asian businesses were hit by steep profit falls, contributing to a 23.5% drop in pre-tax profits to £1.39 billion.
Tesco insisted its turnaround efforts were paying off with an improved performance in the UK, where trading profits rose 1.5% to £1.13billion in the six months to August 24. While UK like-for-like sales, excluding fuel, fell 0.5% overall in the first half, the group halted declines in the second quarter, with sales remaining flat against a 1% drop in the previous three months.
Shares slid more than 3% amid fears that Tesco is losing the battle to keep its international business on track, while rival Sainsbury’s also heaped on more pressure as it reported a better-than-expected sales hike in its second quarter.
Sainsbury’s posted a 2% rise in like-for-like sales, excluding fuel, as it continues to gain market share at the expense of its three main rivals.
Philip Clarke, chief executive of Tesco, said: “Despite continuing challenges, we have made further progress on our strategic priorities.”
“Our performance in the UK has strengthened through the half, particularly in our food business, as we have continued our work to Build a Better Tesco,” he added.
With the impact of one-off costs and lower profits on property sales stripped out, underlying group pre-tax profits fell 8.4% to £1.47 billion on a constant currency basis.
John Ibbotson, director of the retail consultants Retail Vision, said Mr Clarke was fighting hard to keep the Tesco ship afloat. “As soon as one leak is plugged, another opens up,” he added.
Tesco suffered a 71% tumble in European trading profits to £55million in its first half and admitted the hit was worse than expected after conditions deteriorated in countries such as Ireland, Turkey and Poland. Profits also fell sharply across Asia, down 12.4% to £314 million, excluding China.
Tesco has been forced to reverse much of former boss Sir Terry Leahy’s ambitious international expansion strategy that saw billions of pounds spent on expanding its footprint.
Under Mr Clarke’s leadership, Tesco is also 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 with the addition of the Giraffe restaurant chain alongside larger stores. Mr Clarke insisted the group was “feeling positive about the changes”.