LONDON (AP) — Tesco PLC, the world's third-largest retailer, reported a 16 percent increase in net profit for the half year ending Aug. 27 despite a drop in sales in its main British market.
Tesco on Wednesday reported a net profit of 1.38 billion pounds ($2.13 billion) for the period, up from 1.18 billion pounds a year earlier. Revenue rose 7.8 percent to 31.8 billion pounds.
Sales excluding petrol and sales tax fell half a percent in Britain, reflecting a broader retrenchment in consumer spending. Tesco recently launched a "Price Drop" campaign to shore up its dominant market share in Britain of around 30 percent.
Tesco shares were down 0.6 percent at 377.9 pence in early trading on the London Stock Exchange.
"Improving the U.K. performance will take time, although we already knew that," said Philip Dorgan, analyst at Panmure Gordon. Nonetheless, he reaffirmed a "buy" rating on shares.
The board proposed to raise the interim dividend by 6 percent to 4.63 pence per share.
Tesco said trading profit — which excludes property-related items — in its main U.K. market was up 4.5 percent, while trading profit in Europe was up 12 percent and in Asia 19 percent.
The company's Fresh & Easy venture in the United States trimmed its losses by 23 percent to 73 million pounds, and Tesco said the U.S. stores were on track to break even by 2013.
Tesco also announced that it was slowing the development of Tesco Bank into a full-service offering, and confirmed that it has not completed the move of all systems to new platforms. The company said it will put off a more aggressive marketing campaign for new products including mortgages until next year.
"It has been increasingly suspected that the migration away from the (Royal Bank of Scotland) network has been late for some time now," said Clive Black, analyst at Shore Capital.
Provisions for settling claims for mis-selling payment protection insurance were raised by 57 million pounds to 92 million pounds, though Tesco said claims to date have been 16 million pounds. Overall, Tesco said full-year trading profit at the bank would fall 40 million pounds below target.