Every little helps
Tesco edges out of the red as it makes ‘significant progress’
TESCO has swung back into the black after unveiling its first quarter of UK sales growth for more than three years, but warned its fightback amid a fierce price war would put profits under pressure.
The UK’s biggest supermarket, which has 30,000 staff and 232 stores in Scotland, said it had made “significant progress” in its turnaround battle as it edged out of the red with bottom-line pre-tax profits of £162 million for the year to February 27, 2016.
This compares with losses of £6.3 billion the previous year – the worst in its history and one of the biggest losses in UK corporate history as the retailer booked £7bn of impairments, writedowns and restructuring charges.
“We have made significant progress against the priorities we set out in October 2014,” said chief executive Dave Lewis.
“We have regained competitiveness in the UK with significantly better service, a simpler range, record levels of availability and lower and more stable prices.
“Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case.”
However, revenue slipped more than four per cent to £54.43bn as the supermarket chain continued to struggle in a “challenging, deflationary and uncertain” UK food market, including competition from German discounters Aldi and Lidl.
Tesco’s shares fell three per cent as it cautioned its investment in price cuts would slow profit improvement – particularly in the first half.
Tesco’s recovery will not be a straight line, Mr Lewis admitted, and said the job to turn around its fortunes was not yet done.
Since the start of its financial year, the retailer has shut 60 unprofitable stores – including four in Kirkcaldy, Grangemouth, Troon and Edinburgh – and shelved plans to open a further 49 stores.
In the coming months, a new Tesco Express store is due to open in Dundas Street, central Edinburgh, creating about 20 jobs, a spokesman said. Earlier this year Tesco announced the creation of an additional 200 jobs at its Dundee customer engagement centre, which already employs 1,000 staff.
About 1,600 employees also work at the group’s distribution centre in Livingston, which services every store in Scotland.
The spokesman declined to comment on speculation that Tesco would be selling off Dobbies, its Midlothian-based garden centre chain. On an underlying basis, the latest set of results showed group operating profits of £944 million, up 1.1 per cent on the previous year, when it reported a 68 per cent slump in trading profits.
Like-for-like UK sales in its fourth quarter grew just under one per cent, which marks Tesco’s first full quarter of growth since 2013 and follows a bumper Christmas for the group, when it saw a surprise 1.3 per cent jump in sales over the six-week festive season.
Mr Lewis said: “We set out to start rebuilding profitability while reinvesting in the customer offer, and we have done this. More customers are buying more things more often at Tesco.”
He was parachuted in to take over from Philip Clarke in September 2014 at a grim time, with Tesco uncovering a £326m accounting black hole in autumn and suffering plunging sales.
Its woes were compounded as trading across the sector was hit by falling food prices, made worse by a price war sparked by the discounters Aldi and Lidl.
Shore Capital said it had been a year of delivery for Mr Lewis, saying he deserves considerable credit for steering this near shipwreck to calmer waters. They noted he has also cut prices across hundreds of lines and disposed of loss-making operations.
‘‘ We set out to start rebuilding profitability while investing in the customer offer, we have done this. More people are buying more things more often