Tesco to reveal fall in profits

Tesco will unveil its first fall in profits for nearly 20 years tomorrow (GETTY IMAGES)

Supermarket giant Tesco will unveil its first fall in profits for nearly 20 years tomorrow as weaker international sales add to its floundering UK performance.

Tesco is forecast by broker Shore Capital to report pre-tax profits of £1.5 billion for the six months to August 25, a drop of 12% on the same half last year. This will be the first fall since 1994.

While the UK performance is expected to show some signs of stabilisation, it is the overseas businesses, such as its European, Asian and US ventures, which will weigh on the overall group performance.

The focus is still likely to remain on is attempts to revive the UK arm, which most recently reported a 1.5% fall in underlying sales in the 13 weeks to May 26.

Despite its latest quarterly sales decline, Tesco said its £1 billion turnaround plan, which has seen it revamp 100 stores and recruit 4,300 extra staff, is beginning to gain traction as it competes more convincingly with rivals.

Shares have recovered by about 14% since June but are still 15% lower than they were at the start of the year after plunging in the wake of the profits warning.

Shore Capital analyst Clive Black underlined the importance of turning around the UK business.

He said: "If Tesco does not stabilise the performance of the core chain and position the business for future growth, albeit at a more sedate pace than historical underlying growth rates, then what it delivers internationally and in retail services will be of secondary interest and we will struggle to recommend the stock positively."

However, analysts have predicted a slide in profits as a variety of economic and political issues slow sales in Poland, the Czech Republic, Hungary and South Korea.

Sunday trading restrictions in Korea have hit the business there hard and could be behind a slide in Asian profits of around 5%, while high tax in Hungary will be one of the reasons behind a 10% drop in profits in the European region.

And Tesco is likely to come under further pressure over its troubled US chain - Fresh & Easy - as it continues to report losses and moves to cut costs.

Group chief executive Philip Clarke has assumed leadership of the UK arm and pulled in marketing and food experts from Tesco's global businesses to oversee the turnaround.

The group has been testing initiatives in a handful of stores across the UK such as reducing space set aside for non-food, boosting the space dedicated for food, ditching the Tesco Value label and bringing in nearly 2,000 new products.

The group also plans to expand its online grocer capacity with more so-called "dark stores" - effectively stores without customers that fulfil grocery orders placed online.

PA