Britain's largest retailer Tesco on Wednesday announced tumbling profits in its first half as higher costs fuelled by rocketing inflation offset a jump in revenue.
Profit after tax slumped to £253 million (€290 million) in the six months to late August from £781 million a year earlier, the supermarket giant said in a statement.
The group noted "cost inflation is significant" and said full-year profits would be towards the lower end of its previous expectation.
"We know our customers are facing a tough time and watching every penny to make ends meet," Tesco chief executive Ken Murphy said in the statement, adding that UK staff would be getting a second pay rise this year.
"Customers are seeking out the quality and value of our own brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out."
Customers are seeking our own brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out- Tesco chief executive Ken Murphy
Tesco added that total sales grew 6.7 per cent to £32.5 billion in its first half. Revenue from sales of fuel soared 39 per cent to almost £4.3 billion.
At the same time, "the wider economic backdrop is leaving its mark and Tesco recognises the uncertainty of the remainder of the year in a cautious outlook statement", noted Richard Hunter, head of markets at Interactive Investor.
Tesco's share price dropped 2.5 per cent to 204 pence following the results.
London's benchmark FTSE 100 index, on which the company trades, was down 1.1 per cent in morning deals.
Ahead, Tesco is expected to be further impacted by a very weak pound hiking import costs.
"UK supermarkets' margins are under huge pressure due to inflation and a weakened pound," Orwa Mohamad, a consumer sector analyst at Third Bridge, said on Wednesday.
Sterling has recovered only slightly after striking a record-low against the dollar last week on concerns over Britain's recession-threatened economy.