Five questions answered on Tesco’s profit drop

Still the Uk's biggest chain.

The UK’s biggest supermarket chain, Tesco, has announced a significant drop in profit during the first half of the year. We answer five questions on Tesco’s profit woes.

By how much has Tesco’s profit dropped by?

Today the company reported a 23.3 per cent drop in profits during the first half of its financial year. The company blamed a challenging retail environment, especially in Europe.

The firm’s pre-tax profits in the six months to 24 August were £1.39bn.

UK like-for-like sales, excluding new store openings, fell by 0.5 per cent.

Tesco is a global company, how does this profit fall reflect in different area of its business?

The supermarket giant said profits fell 67 per cent in Europe to £55m, while Asian profits, excluding China, dropped 7.4 per cent to £314m.

However, UK trading profits rose 1.5 per cent to £1.13bn.

Group profit margins fell from 5.4 per cent to 4.9 per cent.

What has Tesco said about these latest figures?

Chief executive, Philip Clarke, speaking to the BBC said:

“There is less pessimism around, but customers are still not seeing real disposable incomes improve.

“They are, perhaps, feeling a little better about the future.”

What have the experts said?

Neil Saunders, managing director of retail consultants Conlumino, speaking to the news broadcaster said:

“…it is fair to say that Tesco is making some progress, especially on the UK front,” he said.

“However, they also indicate some more worrying signs that there are a number of deep seated issues on the international scene that need to be addressed.”

How are Tesco’s competitors doing?

In this fiercely competitive market Tesco is still the UK’s biggest chain. However, rival Sainsbury’s reported a 2 per cent rise in like-for-like sales during the second quarter of its financial year.

While Aldi saw UK pre-tax profits surge 124 per cent to £157.9m in 2012.

Sainsbury’s chief executive Justin King said Sainsbury’s was the only major supermarket chain increasing its market share.

“Our groceries online business grew by over 15 per cent in the quarter and is now worth over £1bn in annual sales.” he said.

“Our convenience business grew 20 per cent year-on-year as customers topped up more frequently during the warm summer weather.”