New Tesco boss blames economy for worst UK results in 20 years

Philip Clarke, the chief executive of Tesco, has blamed a further deterioration in consumer confidence and the "extraordinary" impact of higher petrol prices on expenditure for a dire set of UK sales, although group profits surged in the first half.

Mr Clarke also hit back against criticism of the £500m-plus investment it made last month in lowering prices, saying "it is not smoke and there are no mirrors". Instead, Mr Clarke said the "real reduction in prices" would contribute to Tesco posting "broadly flat" underlying UK profits in the second half of the year.

Strong growth overseas, notably in Thailand and China – as well as a rapid store opening programme in the UK – helped the group increase its pre-tax profits by 6.2 per cent to £1.92bn for the 26 weeks to 27 August. The supermarket giant, which has operations in 14 countries, posted total sales up by 8.8 per cent to £35.53bn.

However, in the UK – which accounts for more than 70 per cent of group trading profit – Tesco's underlying sales, excluding fuel and petrol, fell by 0.5 per cent over the half. Its UK like-for-like sales tumbled by 0.9 per cent in the final three months – Tesco's weakest performance for about two decades.

In particular, the grocer's non-food operation, which fell by 4.8 per cent in the first half, is being hit by the squeeze on discretionary spending, as well as by higher petrol prices that have led to fewer trips to its out-of-town hypermarkets.

Mr Clarke said that, even so, Tesco's UK customers had spent an "extraordinary" £750m more on petrol over the half because of the higher prices, and this had hit disposable incomes hard.

Tesco's chief executive was also downbeat on consumer sentiment. Mr Clarke said: "Confidence is lower than it was at the beginning [of the half]... there is not much good news out there."

To turn around its UK performance, Tesco launched a £500m offensive last month to reduce prices on more than 3,000 items in its stores. It is also investing in customer service and product across its stores.

Jonathan Pritchard, a retail analyst at Oriel Securities, said: "The Big Price Drop gets all the headlines and analytical attention but we're more impressed by the activity regarding quality in fresh, availability and the improvements in staff densities." Tesco has continued to expand rapidly in the UK, adding more than 700,000 square feet of space in the first half. The grocer increased its total UK sales, including petrol, by 7.1 per cent to £23.43bn. New stores and extensions accounted for more than half of this increment.

Mr Clarke struck a bullish note on Tesco's Fresh & Easy convenience store business in the US, which it has vowed to make profitable by 2012-13. He said the reduction in Fresh & Easy's losses – down 23.2 per cent to £73m – was "an important milestone", achieved through continuing sales growth and better margins from its acquisition of a supplier in the US.

Mr Clarke said: "I am even more confident that we are on track to break even than I was in April."

However, Tesco Bank suffered a 65.9 per cent fall in profits to £44m,largely because it increased its provision by a further £57m for alleged mis-selling of payment protection insurance relating to its joint venture with Royal Bank of Scotland before 2008. The bank has also suffered IT setbacks.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk