The UK's biggest supermarket chain, 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 £1.39bn, with UK trading profit up 1.5% to £1.13bn.
UK like-for-like sales - which strip out the impact of new stores - fell by 0.5%.
Rival Sainsbury's reported a 2% rise in like-for-like sales during the second quarter of its financial year.
'Making progress'Tesco said it had seen a challenging retail environment in Europe, where profits fell 67% to £55m.
It also saw margins being squeezed, in what is already a notoriously competitive retail environment. 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.
"There is less pessimism around, but customers are still not seeing real disposable incomes improve," he told the BBC's Today Programme.
"They are, perhaps, feeling a little better about the future," he added.
Neil Saunders, managing director of retail consultants Columino, said that as Tesco continued with an organisational overhaul, results needed to show signs that it was moving in the right direction.
"Against this standard it is fair to say that Tesco is making some progress, especially on the UK front," he said.
"However, they also indicate some more worrying signs that there are a number of deep seated issues on the international scene that need to be addressed."
Tesco's results came as the firm announced a joint venture with China Resource Enterprises (CRE) ,
The UK firm will combine its Tesco China business, which includes 134 Chinese stores, with the 2,986 stores held by CRE's Vanguard business.
Tesco will have a 20% stake in the business, which it said would have sales approaching £10bn.
OutperformingSainsbury's chief executive Justin King said his firm was the only major supermarket increasing its market share.
"Our groceries online business grew by over 15% in the quarter and is now worth over £1bn in annual sales." he said.
"Our convenience business grew 20% year-on-year as customers topped up more frequently during the warm summer weather."
Sainsbury's said sales of its own-brand products had continued to rise at more than twice the rate of branded goods, with its premium Taste the Difference range growing particularly strongly.
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