Supermarket giant Tesco revealed a 70% plunge in half year earnings for its UK and Ireland business despite seeing an improvement in under-pressure sales.
The chain said like-for-like sales in the UK fell 1.3% in the six months to August 29 - a marked improvement on the 4.6% slide seen a year ago.
But a fierce supermarket price war took its toll on profits, with earnings tumbling to £166 million in the first half, from £543 million a year earlier, while overall group profits dropped 55% to £354 million.
The group said the fall in like-for-like sales in the UK and Ireland improved from 1.5% in the first three months to 1% in the second quarter, but the group warned that price deflation was still hitting sales.
Dave Lewis, chief executive of Tesco,cautioned there was "more deflation to come and I don't see the market changing".
But he addedhe was "quietly confident" over the group's turnaround, having hit a low point at the end of last year.
The group assured that customers were responding to its overhaul, with transaction numbers rising - up 1.5% in the first half - and sales by volume also ahead, up 1.4%.
Britain's big four supermarkets have been hit by the rising popularity of discounters Aldi and Lidl in recent years, with their share being eaten away by the two chains.
They have fought back by slashing prices, but have paid the price with falling sales and profits coming under pressure.
The new national living wage will add to costs faced by the businesses, with Tesco confirming it will cost it around £500 million to hike its wages to meet the £9 an hour minimum by 2020.
But Mr Lewis said the group already pays more than the £7.20 minimum being brought in under the new living wage plans next April, adding that with all the extra staff benefits taken into account, its hourly pay is closer to £9.