Tesco profits fall 11.6% despite Q2 sales growth

First half pre-profits for the 26 weeks to August 25 fell 11.6% on the same period last year, as expected.

However, the grocer stemmed the tide of 18 months of consecutive like-for-like decline, reporting an upturn to 0.1% excluding fuel and VAT in the second quarter, up from a 1.5% decline in the first quarter.

Chief executive Philip Clarke attributed the fall in profits to the investment programme that has already included a £200m investment to bring an additional 8,000 staff into stores and modernising 230 stores including improving its fresh meat, bakery and produce departments.

Tesco group sales excluding fuel rose 1.6% in the first half.

Tesco said the majority of its businesses in Asia and Europe gained or held share while losses at its US chain Fresh & Easy reduced “slightly” to £72m.

The retailer said new restrictions on opening hours, as expected, had had an “immediate, unhelpful effect” on profits in South Korea which is expected to cost it £100m for the year, most of which will be felt in the second half.

Clarke said: “We continue to act decisively to tackle challenges and seize opportunities across the group. 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.

“I am pleased that the team is in place, highly focused and energised, and I want to thank them for everything they have done.”

He added: “The external environment continues to present challenges all over the world. Whilst our businesses in Asia and Europe have continued to do a great job for customers, our financial performance there reflects the tough economic backdrop and particularly the regulatory changes in South Korea. That we have gained or held market share in the majority of markets is a testimony to the skill of our teams across the group.”

Tesco said Fabiola Arredondo, managing partner of US investment firm Siempre Holdings, would no longer be joining its board in February 2013 due to “a change in her personal circumstances” which Tesco wholly understands would make the travel and other demands of joining another London-based international board impractical.

Kantar Retail director of retail insights Bryan Roberts said: “Tesco’s numbers today tell us that its underperformance in the UK may well have bottomed out. The last couple of years have shown us that even the giants can falter when they take their eye off the shopper; years of underinvestment in stores and people are now being reversed by Philip Clarke and these early signs suggest that his radical investment programme is paying off.”

He added: “In the fullness of time, Tesco’s recent problems are likely to be seen as an unfortunate blip. Although structural problems remain, such as Tesco’s reliance on tricky non-food categories in its Extra stores, its leadership in online and convenience store retailing augur well for the future. Tesco’s pioneering roll-out of click-and-collect grocery, for example, indicates it is getting back on the front foot.”