Tesco reports 10% profits rise

Tesco, which has lost ground to discounters as hard-pressed shoppers look to cut food bills, said UK like-for-like sales rose 4% excluding fuel during the second quarter.

This month it fought back with a new campaign as "Britain's Biggest Discounter", slashing costs on hundreds of items and launching 350 new products. It said the customer response so far to the biggest overhaul in its grocery ranges for a decade was "very pleasing".

Underlying pre-tax profits for the six months to August 23 were £1.45 billion, in line with market expectations.

Chief executive Sir Terry Leahy said: "Tesco is at its best in tough markets - responding to the changing needs of customers - and that's why we have been able to make good progress this year, despite facing into powerful economic headwinds."

In the UK, the group - which has 20 million customers a week - saw evidence of shoppers feeling the squeeze of rising living costs trading down, affecting sales of its "Finest" and organic ranges.

Higher food product prices have heaped the pressure on supermarkets across the board, although Tesco hinted at some relief ahead for shoppers with inflation expected to subside slightly in the second half.

But signs of the retail giant's determination to push back against low-budget rivals like Aldi and Lidl encroaching on its dominant market position were shown in the strong start for its new discount range.

"Based on the first week's sales, if we carry that on it will be bigger than Aldi in the UK," finance director Andrew Higginson said. Aldi currently has a UK share of around 5%.

The group's overall UK sales rose 10% to a mammoth £20.1 billion during the first half. Non-food growth slowed in the tougher economic conditions, although some categories did better as shoppers stayed in more.