Supermarket giant Tesco has revealed disappointing results, posting its first profits fall since 1994 despite ploughing £1bn into its turnaround for the 26 weeks to August 25. Analysts expressed concern over the grocer’s overseas operations.

US losses were worse than we were expected at £74m compared to our expectation of £66m. The market was prepared for a decline in profits but this is a disappointing statement even in that context we believe. The Bank was the only positive, reporting a 114% increase in first half EBIT of £94m compared to our forecast of £50m - Kate Calvert, Seymour Pierce

Clearly, sales are improving – and have outperformed the industry since June – and margin investment of 86 basis points in H1 is in line with expectations. Getting the UK back onto a recovery path is all about doing 1,000 things 1% better, rather than having a wonderful store format that will save the company. Therefore, there are changes to staff numbers, staff hours, own label ranges, store layout and signage, the localisation of ranges, personalisation of offers through Clubcard and marketing strategy, all of which should feed through to a proposition that is in line with customers’ needs and requirements. It will take time, but we believe that it is on track. Despite the amount of capital that has been absorbed and the losses that it has generated, we suspect that if it were announced today that the US was to be closed or sold, then Tesco shares would rocket. This may not be the best long term outcome, but if it is to remain part of the group, then we would expect to see very compelling evidence that this makes sense. We think that the deadline is the prelims in April - Philip Dorgan, Panmure Gordon

The underlying issue relates, primarily, to the retail proposition, which remains below par. Tesco’s store environments, its service standards and its range are all in need of improvement. To be fair, this is something the company has recognised and is in the process of remedying, although results to date have been fairly mixed. The re-launch of the Value range was a solid first step and helped to make the offer more appealing to shoppers. However, store refreshes have been fairly lacklustre and carry a sense of a company ‘playing catch up’ rather than one that is leading the market with new thinking and concepts. Moreover, with only a fraction of the estate refreshed Tesco has a long way to go before improved stores start to have a tangible impact on the sales line - Neil Saunders, Conlumino

In the fullness of time, Tesco’s recent problems are likely to be seen as an unfortunate blip. Although structural problems remain, such as Tesco’s reliance on tricky non-food categories in its Extra stores, its leadership in online and convenience store retailing augur well for the future. Tesco’s pioneering roll-out of Click & Collect grocery, for example, indicates that it is getting back on the front foot. Competitors should be fearing the worst as 2013 is likely to see a resurgent Tesco looking to make up the ground it has lost - Bryan Roberts, Kantar Retail