The shares of Tesco (LSE: TSCO) (NASDAQOTH:TSCDY.US) slid 12p to 347p during early trade this morning after the supermarket revealed its half-year profits had dropped 8%.
The FTSE 100 member admitted its trading profits had fallen from £1,718m to £1,588m during the 26 weeks to 24 August.
The blue chip cited a poor performance within its European operations, where trading profits crashed 68% to just £55m, for the setback. Tesco blamed “a difficult economic environment, strong competition and a consumer preference for smaller store formats” for the collapse.
Elsewhere, the group’s Asian subsidiary reported profits down 7% to £314m following regulatory changes in Korea, while the core UK division reported profits up 1% to £1.1bn.
Tesco noted its home market had seen online sales gain 13% during the six months and underlying food sales advance 1% during the second quarter.
Group revenue for the first half climbed 1.9% to £31.9bn while the interim dividend was held at 4.63p per share.
Tesco also confirmed today an agreement with China Resources Enterprise to place all 134 of its Chinese stores into a joint venture.
Philip Clarke, Tesco’s chief executive, said:
“We are continuing to make good progress on Building a Better Tesco in the UK and the investments we have made in our international businesses have started to feed through into an improved trading performance in the second half.
However, challenging economic conditions overseas, particularly in Europe, have held back consumer confidence and spending, leading to a lower level of sales than expected.”
Looking ahead, Mr Clarke said that Tesco remained committed to its target of mid-single digit trading profit growth for the medium term.
Prior to today, City brokers had been expecting the supermarket to report current-year earnings down 13% to 31.2p per share and sustain its annual dividend at 14.76p per share.
Based on those estimates, Tesco’s shares may trade at 11 times possible profits and offer a 4.2% potential income.
