Tesco, Britain's top retailer, met forecasts with a 10 percent rise in first-half profit, signalling it can cope with weak markets even as it called for interest rate cuts and steps to steady banks.
Shares in the supermarket group, which serves more than 20 million British shoppers a week, jumped as much as 5.4 percent in early trading on Tuesday after it reported a slight acceleration in second-quarter UK underlying sales.
"Solid and reassuring," Deutsche Bank analysts said in a research note.
Tesco Chief Executive Terry Leahy told Reuters that shoppers were "hard pressed", but that some analysts were exaggerating by saying retail conditions were the worst for 30 years.
"Inflation has passed its peak … and that will leave room for interest rate cuts which I think will be welcomed," he said in a telephone interview.
"Also, though, it's important that we get banks back to doing their job, which is to provide liquidity for the real economy and lending at sensible prices".
Tesco, the world's No. 3 retailer behind France's Carrefour and U.S. group Wal-Mart, said profit before tax and one-off items was 1.45 billion pounds ($2.62 billion) in the 26 weeks to Aug. 23, on sales up 14 percent to 25.6 billion.
The interim dividend was raised 11.6 percent to 3.57 pence.
Analysts on average expected a profit of 1.43 billion pounds and sales of 25.78 billion, according to a Reuters poll.
"The outlook for consumer economies around the world remains highly opaque. However, the company expresses confidence in its ability to thrive in tough conditions — corroborated by these results," Cazenove analysts said in a research note.
At 0745 GMT, Tesco shares were up 3.2 percent at 381.7 pence, valuing the group at about 30 billion pounds.
30,000 NEW JOBS
Tesco, which runs more than 3,700 stores in 13 countries, said first-half growth was driven by a 27 percent increase in international sales, helped by a 10 percent rise in the UK.
It is on track to create 30,000 jobs this year, it added.
Britain's shoppers are curbing spending amid higher food and fuel costs, sliding house prices and economic uncertainty. Earlier on Tuesday, the GfK NOP consumer confidence index showed UK shoppers remained gloomy in September.
Tesco's UK like-for-like sales excluding fuel, a key industry measure, rose 4.0 percent in the second quarter, up from 3.5 percent in the first and broadly in line with analysts' forecasts of 4.1 percent.
According to researchers TNS WorldPanel, Tesco has been losing UK market share to rivals more closely associated with low prices, such as Wal-Mart-owned Asda and Morrison, as well as smaller discounters such as Aldi and Lidl.
Morrison, for example, posted an 8.2 percent rise in same-store sales excluding fuel for the quarter ending Aug. 3.
But Tesco, which still has a British market share of over 30 percent, is fighting back with a new low-cost range of products under the banner "Britain's Biggest Discounter," and Leahy said he was confident of regaining any lost customers.
The new products and price cuts were "all budgeted and planned for," Leahy said, playing down suggestions that grocers were on the verge of a price war that might dent profit margins.
FRESH & EASY
Tesco said its new U.S. chain, Fresh & Easy, made a 60-million-pound loss in the first half and sales of 76 million.
Sales densities, a closely-watched industry measure, averaged $11 per square foot per week, which Leahy said was above the industry average of about $8.5. Stores opening since a pause expansion in the Spring, were averaging closer to $13.
"I think we have it right," Leahy said of the small adjustments made since the pause, such as a warmer in-store atmosphere and the introduction of a small number of promotions.
Tesco shares have outperformed the DJ Stoxx European Retail Index by 25 percent over the past year, but trade at 13.2 times forecast earnings, below rivals Morrison and J Sainsbury on 14.9 and 16.3 respectively.
