Tesco profit tops forecasts

"The performance of the UK was very strong ... the second quarter number was boosted by the hot summer and the World Cup, so we could not expect this rate of growth to be maintained into the second half," Numis said in a note.

Core UK sales were up 10.2 percent, international sales up 21.3 percent and tesco.com sales up 28.7 percent.

INFLATION

Leahy brushed off suggestions that Tesco, which four years ago took 12 months to make a billion pounds of profit, could be facing saturation and the prospect of a dramatically slowing growth rate in its core British market.

"Tesco thrives on competition, so we are confident looking forward that as long as we concentrate on our customers we will be able to cope with whatever the competition throw at us," he said.

Leahy also noted that the second quarter had seen some inflation in the face of energy, commodity and interest rate rises. Tesco said it saw prices fall around 0.4 percent, excluding petrol, in the first half.

"The two quarters were different and you saw some inflation of around half a percent in the second quarter," Leahy said.

Tesco shares traded up 0.5 percent at 367.9 pence by 9:30 a.m., outperforming a slight fall in the DJ Stoxx index of European retailers.

It trades on a multiple of 14.8 times 2008 forecast earnings according to Reuters data, a 27 percent discount to UK peers.

Tesco holds a 31.4 percent share of the 120 billion pound UK grocery market, more than a third more than that of its nearest rivals J Sainbury and Wal Mart's Asda. But both smaller supermarkets are outpacing Tesco's growth rate.