Tesco has reported a 23.5% drop in profits during the first half of its financial year.

Tesco’s pre-tax profits in the six months to 24 August were £1.39b, with UK trading profit up 1.5% to £1.13b. UK like-for-like sales fell by 0.5%.

Sainsbury’s, however, reported a 2% rise in like-for-like sales during the second quarter of its financial year. Tesco said it had seen a challenging retail environment in Europe, where profits fell 67% to £55m.

Group profit margins fell from 5.4% to 4.9% over the period. The company’s shares fell 2.5% in early trading. The firm’s chief executive, Philip Clarke, said Tesco was making progress and was strengthening its UK business, but he saw little improvement in consumers’ spending power.

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