Shoppers flock back to Tesco as prices held low
BRITAIN’S BIGGEST retailer Tesco has reported a leap in half-year profits and said more customers are shopping at the grocery chain following its decision to keep prices low.
The group cheered investors with the news it will resume dividend payments after nearly three years and said its price inflation was one per cent less than rivals as it works with suppliers to protect customers from inflationary pressures.
The group said UK and Ireland underlying operating profits leapt 21 per cent to £471m in its first half following its seventh quarter in a row of rising sales.
UK like-for-like sales in the second quarter rose 2.1 per cent, slightly down on the 2.3 per cent recorded in the previous three months.
Chief executive Dave Lewis said: “We are continuing to make strong progress. Sales are up, profits are up, cash generation continues to strengthen and net debt levels are less than half what they were when we started our turnaround three years ago.”
Sales rose from £27.3bn to £28.3bn, while pre-tax profits rose from £71m to £562m. The group said it will pay a 1p interim dividend.
“Today’s announcement that we are resuming our dividend reflects our confidence that we can build on our strong performance to date and in doing so, create long-term, sustainable value for all of our stakeholders,” said Mr Lewis.
Tesco has come under heavy fire in recent days for its ownbrand chicken after it was discovered that its supplier 2 Sisters had taken Lidl chicken and repackaged it under Tesco’s Willow Farm brand.
Mr Lewis said the group was as “shocked as anybody” by the undercover media investigation, but said it would keep the brand, which he insisted had a quality specification unique to Tesco. 2 Sisters has agreed to shut the facility and retrain employees.
Sales of Tesco’s own-label ranges rose 4.6 per cent in the first half as customers looked for value in the face of rising prices caused by the weak pound.
The results come as Tesco awaits the findings of a competition probe into its planned £3.7bn takeover of wholesale giant Booker, with provisional results due from the Competition and Markets Authority later this month and a final decision in December.
Mr Lewis acknowledged it had been a “testing time” for colleagues after the group recently axed 1,200 roles at its head office and announced it was shutting its call centre in Cardiff with the loss of 1,100 jobs as part of the cost savings drive.
The group is aiming to slash costs by £1.5bn, but Mr Lewis said the head office restructuring was now “behind us” and added that it had increased its customer-facing store staff.
“We are continuing to make strong progress. Sales are up. Tesco chief executive Dave Lewis.
Senior analyst Laith Khalaf at Hargreaves Lansdown said: “There’s not many things more telling about the health of a company than its ability to pay a dividend, and Tesco’s return to the register after a three year hiatus speaks volumes about the progress the company has made.
“It’s only a small amount, but this token payment is symbolic in nature.”
But he warned the planned Booker merger would be the “potential banana skin for management”.
“The risk is that just as the good ship Tesco is steadying, it gets blown off course by the Booker deal.
“However CEO Dave Lewis will no doubt argue that in a world where Sainsbury’s owns Argos, and Morrisons is flirting with Amazon, he needs to push Tesco on to stay ahead of the game,” he said.