Supermarket Wars: Tesco Profits Fall 11%

Supermarket chain Tesco (LSE: TSCO.L - news) has reported its first fall in profit in 18 years as it fights to halt the decline in its market share.

Pre-tax profit at the group dropped over 11% to £1.66bn in the six months to August 25 as Britain's largest retailer invested millions following a shock January profit warning.

There were tentative signs it was paying off, as sales in the UK excluding fuel and VAT in the second quarter rose 0.1% - after 18 months of decline.

This beat expectations and marks a significant improvement on the supermarket's first-quarter decline of 1.5%.

But like-for-like sales in Asia and Europe (Chicago Options: ^REURUSD - news) fell into the red as shopping hour restrictions hit trade in South Korea and the eurozone crisis impacted its performance on the continent.

And losses at Tesco's US chain Fresh & Easy narrowed by just £1m to £72m, amid investor calls to withdraw from the country.

Tesco, which is the UK's largest retailer and the world's third largest supermarket group, still makes over 60% of its trading profit in Britain.

In April, chief executive Philip Clarke unveiled a plan to invest £1bn to stem a steady decline in market share to Asda (NYSE: WMT - news) , Sainsbury (LSE: SBRY.L - news) 's and Morrisons - as well as discounters Aldi and Lidl.

The money has been used to recruit around 8,000 more permanent staff, renovate stores and revamp food ranges, such as the Everyday Value collection.

Tesco has also boosted its online offerings and rolled out its Click & Collect service of buying online for pick-up in store.

"I am encouraged by our customers' initial responses to the changes we have made - but there is much more to be done," Mr Clarke said.

It comes as Sainsbury's released a trading update which said its like-for-like sales in the second quarter, excluding fuel but including VAT, will rise 1.9%.

Demand for its Taste The Difference range helped boost the figures, with the chain's non-food items also selling well.

Britain's third-largest supermarket added that it is continuing with its aggressive expansion plans - opening five supermarkets and 28 convenience stores over the quarter.