Tesco Profits Rise, But Home Demand Affected By Fuel Prices

Tesco said on Tuesday that demand from shoppers in the UK is not as high as in overseas markets because higher fuel prices are having an impact on shopping budgets.

Sir Terry Leahy, the chief executive of Tesco, stated that while home market experiences "slow and steady" economic recovery, the company has enjoyed a "sharp" increase in its overseas business.

"The global economic headwinds of the last two years are being replaced by the tailwinds of recovery in most of our markets", Leahy said, while adding, "Our important Asian markets in particular are emerging strongly from recession".

Commenting on Tesco's UK chain, Teahy said that it has "coped very well with subdued demand".

Leahy's remarks came as UK's largest retailer reported a 14% rise in profits at £1.8bn in the first half. Group sales go up by 8% to £32.9bn. UK sales in the second quarter rose by only 0.4% (not including fuel and VAT) which according to Clive Black, a Shore Capital analyst, shows that trading has been "tough" for the company.

The latest data from research company Kantar Worldpanel shows that Tesco's market share fell from 30.9% to 30.8%, with the company losing sales to its competitors. Morrisons reported 1% growth for the same period, while Sainsbury's is likely to report 1.3% growth.

Laurie Mcllwee, Tesco's finance director, told reporters that weak growth at home is to be blamed for low demand. He said that last year's high food inflation and the rise in fuel costs limited the buying power of customers.