Profit plunge at Tesco

Group sales fell 2 per cent on a like-for-like basis, and the trading profit slumped 7.6 per cent to £1.59bn, while the underlying pre-tax profit, which strips out profits from property, was down 7.4 per cent to £1.47bn. The main culprit behind the decline was Europe, where cash profits plunged 68 per cent to £55m, as like-for-like sales, excluding petrol, fell 5 per cent, with particularly disastrous trading in Turkey and Poland.

Asia was another area of weakness. Here, sales fell 3.7 per cent, with declines across Malaysia, Thailand and South Korea, leaving the trading profit down 7.8 per cent to £314m. To stem heavy losses in China, Tesco has signed a joint venture with China Resources Enterprise, giving it a 20 per cent stake in the combined business. Tesco will make a cash contribution to the JV of £185m and pay CRE £80m at completion, expected in the first half of 2014, followed by a further payment of £80m on the first anniversary of completion.

Turning to the UK, like-for-like sales fell 0.5 per cent, while overall sales inched up just 1.1 per cent to £24bn, resulting in a 1.5 per cent rise in the trading profit to £1.1bn. Sales growth was held back by Tesco's general merchandise business, while food improved only slightly in the second quarter.

Meanwhile, rival Sainsbury's (SBRY) reported an upbeat second quarter trading statement, with total sales up 4.6 per cent and like-for-like growth of 2 per cent, which leaves sales and same-store sales across the first half up 4 per cent and 1.4 per cent, respectively. Own-brands grew at more than twice the rate of branded goods, with the Taste the Difference range growing particularly strongly.