SHARES in Tesco fell by nine per cent yesterday despite a reasonably strong start to the year as the market reacted to the supermarket chain’s profits falling below expectations.

Chief executive Dave Lewis hailed “a good start to the year” after the company saw like for like sales rise by 2.2% and pre-tax profits rise by 2%.

However, the results, which cover the six months to the end of August, also showed that operating profit fell below expectations at £933 million. Shares in the company closed at 215p, down from 235.2p the previous day.

Ian Forrest, an investment research analyst at The Share Centre, noted that despite Tesco posting its eleventh consecutive quarter of sales growth, its shares fell “in reaction” to the operating profit figure.

“Operating profit rose 24% to £933m, but that was some way below the £962m expected by the market,” he said.

Noting that Tesco had also announced a 67% increase to its interim dividend, Emma-Lou Montgomery of Fidelity Personal Investing’s share dealing service said that the business had “delivered a mixed bag for investors” with the results.

“On the one hand you have a small rise, but a rise nonetheless, in pre-tax profits and sales in the UK and Ireland, which takes Tesco into its 11th consecutive quarter of growth,” she said.

“There’s also the 67% year-on-year boost to the interim dividend which gives shareholders a 1.67p per share pay out.

“But you’ve also, notably, got no word on the roll-out of [discount retail chain] Jack’s, which leaves you questioning whether that was a gimmick.”

Jack’s, which launched last month to, as Mr Lewis said, offer “great tasting food at the lowest possible prices”, is Tesco’s response to competition from low-cost German retailers Aldi and Lidl.

The first two Jack’s stores have opened in Chatteris in Cambridgeshire and Immingham in Lincolnshire, with a total of between 10 and 15 expected to open across the UK in the next six months.

Tesco’s UK and Ireland business was boosted during the review period by its £3.7 billion acquisition of wholesaler Booker, which went live earlier this year.

Of the £685m that the UK and Ireland contributed to overall operating profits, £97m came from Booker.

Elsewhere, the business was impacted by changes to Sunday trading regulations in Poland that meant there were 13 fewer trading days in the reporting period than there were in the same period last year. That resulted in a fall in like for like sales of 1.2%.

“We have continued to exit unprofitable stores in the region, with 18 store closures in Poland earlier in the year contributing to an overall sales reduction of 3.5% at constant exchange rates,” Mr Lewis said.

“We announced the closure of a further 13 Polish stores in August.”

Similarly, in the firm’s Asian business sales fell by 9% in the first quarter and 4.8% in the second, with Thailand in particular proving to be a drag on the business.

“We are continuing to see a sales impact of nearly 2% in Thailand from the issuance of government welfare cards which cannot be redeemed in modern retail chains,” Mr Lewis said.

“In addition, we have made significant changes to our sales mix and promotional strategy.

“Combined with the deflationary effect of our own price investment in a highly competitive and challenging Thai market, this has resulted in some continued volatility in our like-for-like sales as we move into the third quarter.

Despite this, Mr Lewis said that Tesco’s prospects for the remainder of the financial year remain positive.

“We are firmly on track to deliver our medium-term ambitions and are continuing to improve the quality and value of our offer for customers in all of our markets,” he said.

“In doing so, we are well-positioned to deliver strong, sustainable returns for shareholders.”