Tesco rings up £1.9bn profit

The supermarket giant, which last week launched its £500m Big Price Drop campaign, said like-for-like sales excluding VAT and petrol fell 0.9 per cent in the three months to August 27, a deterioration on the 0.1 per cent decline in the previous quarter.

Despite the worsening situation in the UK, the group recorded a 6.2% rise in underlying profits to £1.9bn in the half-year, boosted by a strong performance in Asia. Sales rose 8.8 per cent to £35.5bn.

Sainsbury’s, which also updated on trading today, revealed that like-for-like sales increased by 1.9 per cent in the 16 weeks to October 1 - the same rate as in the previous quarter. Unlike Tesco, its figures include VAT.

The UK sales performance - Tesco’s worst for 20 years - highlights the squeeze on consumers’ spending power as wages fail to keep up with rising prices.

Tesco admitted its like-for-like growth was slower than planned but claimed it was “a robust performance in the most challenging retail market we have seen for a generation”.

Like-for-like sales in food were positive and were showing signs of improvement, it said, but its performance was dragged down by weakened demand for non-food, particularly electronics and entertainment items - two of its largest product groups.

However, its total UK sales, which include VAT, petrol and the benefit of new store openings, grew 7.1 per cent to £23.4bn, which it said was faster than the market as a whole.

Trading profits from its UK business rose 4.5 per cent to £1.3bn but it expects them to flatten out in the second half of its financial year.

The group’s Big Price Drop has seen it reduce the cost of 3,000 items in a bid to win back shoppers and arrest recent declines in its market share, although it has been accused of not being bold enough.

Tesco promised that there will be “more change to come” as it continues to improve its offer and store standards but warned sales would not pick up immediately.

Meanwhile, Sainsbury’s, which recently changed its slogan to Live Well For Less, described its performance as “good” despite a “tough consumer environment”.

Total sales were up 7.8 per cent, boosted by its 400 Sainsbury’s Local convenience stores, which saw growth of 20 per cent, it said.