Tesco beats forecasts with £3.1 billion profit

Sales for the year to end-February rose 13.5% to £59.4 billion as it shrugged off suggestions its grip on the UK groceries market is loosening.

The 10% leap in profits beat City forecasts and made Tesco the first-ever retailer to break through the £3 billion mark.

However, it had to eat humble pie in the US, where its Fresh & Easy stores have racked up much higher losses than have so far been conceded.

Tesco had hoped to announce the 115 stores — mostly on the west coast — would break even this year, but unveiled trading losses of £142 million, up from £62 million the previous year.

The company said the losses "reflect the fact that the business has been built with the necessary infrastructure in place from the beginning to support hundreds of stores. At this stage, it is therefore operating with high overheads."

This admission is a triumph for Mike Dennis, the analyst at US stockbroker Piper Jaffray, who first said more than a year ago that Tesco could find it tough to crack America.

"The Fresh & Easy concept is not right," he said in February 2008. "They need to quickly find out what the issues are and reset the concept."

Tesco described his claims as "scaremongering".

Fresh & Easy is run by Tim Mason, who cashed in £1.3 million of Tesco shares last year.

In the UK, Tesco remains dominant, with a market share of more than 30%. There are some signs this is slipping, with intense competition from a resurgent Asda, a reborn J Sainsbury and super-discounters such as Aldi.

Moves by the competition authorities to clamp down on Tesco's dominance seem to have been stifled by the recession, but there is rising concern in some quarters about Tesco's £9.6 billion debt pile.

The group said today it was moving to bring this down but analysts say it has said this before without acting.