Tesco Ir­ish sales hit €1.3bn as shares dip on Asia profit slump

Irish Independent - Business Week - - FRONT PAGE - John Mul­li­gan

TESCO’S like-for-like sales in Ire­land rose 3.1pc dur­ing the first half of the group’s fi­nan­cial year, as its per­for­mance con­tin­ues to im­prove in a com­pet­i­tive gro­cery mar­ket, ac­cord­ing to re­sults from the gro­cery re­tailer.

That per­for­mance com­pared to a 1.1pc rise in like-for-like sales in Ire­land dur­ing the first half of its pre­vi­ous fi­nan­cial year.

Ex­clud­ing Vat but in­clud­ing fuel, Tesco’s rev­enue in Ire­land hit €1.32bn in the 26 weeks to Au­gust 25. That com­pared to rev­enue of €1.23bn in the first half of its pre­vi­ous fi­nan­cial year, which was also for a 26-week pe­riod.

It said that its own brand vol­ume sales in Ire­land jumped 9pc in the lat­est pe­riod. The re­tailer has fo­cused sig­nif­i­cantly on de­liv­er­ing value price-points for con­sumers, and also re­launched its own-brand prod­ucts.

Tesco shares plunged as much as 10pc how­ever, as the group first-half per­for­mance missed fore­casts. Op­er­a­tions in Poland and Thai­land weighed on the busi­ness. The share de­cline also came de­spite an im­proved per­for­mance in its key UK mar­ket. Tesco CEO Dave Lewis said the group had made a good start to the year and en­joyed its 11th con­sec­u­tive quar­ter of growth in Ire­land and the UK

Tesco’s to­tal sales in Ire­land, ex­clud­ing fuel and ex­clud­ing Vat, were 8.4pc higher at ac­tual ex­change rates dur­ing the first half of the group’s fi­nan­cial year, as it ben­e­fited from a stronger euro ver­sus ster­ling.

At con­stant for­eign ex­change rates, its sales in Ire­land ex­clud­ing fuel and Vat were up 7.2pc in the first half.

Tesco has 152 stores in Ire­land, with a mix of Tesco and Tesco Ex­press out­lets. It opened two of the out­lets since the end of the last fi­nan­cial year.

The most re­cent fig­ures from re­search group Kan­tar World­panel show that Tesco re­mains the largest gro­cery re­tailer in Ire­land, with a 22.1pc share of the mar­ket.

Group sales at the re­tailer were 12.5pc higher at £28.3bn (€31.8bn) on a con­stant cur­rency ba­sis in the first half of the fi­nan­cial year. Tesco’s group op­er­at­ing profit be­fore ex­cep­tional items and other items was £933m (€1.04bn), which was 23.9pc higher year-on-year.

But that was less than the £978m that had been ex­pected by an­a­lysts.

The re­tailer’s like-for-like sales in the UK were up 2.3pc.

CEO Dave Lewis, who was parachuted in to lead Tesco fol­low­ing an ac­count­ing scan­dal in 2014, said the group has made a “good start” to the year. He said the com­bined sales per­for­mance across Ire­land and the UK was its 11th con­sec­u­tive quar­ter of growth.

The group profit short­fall was ex­plained by a 29.1pc de­cline in profit in Asia and a 3.3pc re­duc­tion in cen­tral Europe, which partly off­set growth of 47.6pc in the UK and Ire­land as Tesco seeks to fight off in­tense com­pe­ti­tion.

Chief fi­nan­cial of­fi­cer Alan Ste­wart said: “I don’t think the mar­ket had fully fac­tored in the Asian side (of the busi­ness) but we’re re­ally en­cour­aged by the UK.”

Tesco cur­rently has a lead­ing 27.4pc share of Bri­tain’s gro­cery mar­ket, ac­cord­ing to in­dus­try data, although it could be over­taken by Sains­bury’s pro­posed £7.3bn (€8.2bn) takeover of Wal­mart’s Asda.

The tie-up be­tween Tesco’s two near­est com­peti­tors, which the UK com­pe­ti­tion reg­u­la­tor is prob­ing, is driven in part by the rise of dis­coun­ters Aldi and Lidl, which are gain­ing ground on Bri­tain’s big four gro­cers, as well as the growth of Ama­zon.

In Asia sec­ond quar­ter like-for-like sales fell 4.8pc, which re­flected Tesco’s de­ci­sion to exit non-prof­itable cash and carry sales in Thai­land. Un­der­ly­ing sales in the Cen­tral Europe di­vi­sion fell 2pc, re­flect­ing weak sales in Poland.

Mr Lewis said the dif­fi­cul­ties in Thai­land and Poland did not im­peril Tesco’s key mar­gin tar­get for the group to earn be­tween 3.5p and 4p pence of op­er­at­ing profit for ev­ery pound cus­tomers spend by the end of its 2019-20 fi­nan­cial year.

Tesco was “firmly on track” to hit that tar­get as well as cost sav­ings of £1.5bn, he said.

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