Tesco profits drop 8.4% as Sainsbury's thumbs its nose

One nil to Sainsbury's, after Tesco posted less-than-encouraging interim results.

by Emma Haslett
Last Updated: 04 Dec 2013
Another bad day at the office for Tesco chief executive Philip Clarke: the supermarket announced disappointing results this morning, with underlying profit before tax falling by 8.4% to £1.5bn in its first half. The disappointment was made all the more potent by strong quarterly figures from Sainsbury's. There'll be no blaming it on the weather this time...

Tesco's total UK sales rose 1.1% to £24bn, but like-for-like sales including VAT and petrol dropped 0.9% over the six months, 0.2% over the second quarter.

On this morning's Today programme, Clarke was keen to stress that the full force of his new strategy - to pep up stores with artisan bakeries and nice little coffee shops and family-friendly restaurants, cutting back drastically on the electronics and homewares that constitute its general merchandise business - is yet to be felt.

He also pointed out how great Tesco's situation in China is: this morning it said it was on the brink of closing a deal with China Resources Enterprises, which owns megamarket chain Vanguard, under which its stores in the country will be absorbed by the Chinese partner but Tesco will retain 20% of the business. You can't blame the boss for putting a good spin on the situation, but the reality is that the deal is more of an admission of defeat - particularly following so closely on the heels of its exit from its US business.

Usually retailers would find some way of blaming poor results on the weather ('it's been too hot!' 'It's been too cold!' 'It's been just right but then a family of bears chased us...') But there's no escaping the fact that, well, Sainsbury's has been just fine: total sales during the 12 weeks to the end of September rose 4.4% (4% excluding fuel).

Obviously, Tesco's operation is much bigger and Clarke is still wrangling with the mistakes it made abroad. But there's no escaping the fact that things aren't going well for the supermarket. Much as shoving Starbucks-style coffee shops into its stores sounds lovely, questions remain over whether it's a long-term solution.

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