Tesco bucks the re­tail trend with 28pc in­crease in profit

Chief’s re­cov­ery strat­egy reap­ing re­wards

Yorkshire Post - Business - - FRONT PAGE - ROS SNOW­DON CITY EDI­TOR Email: ros.snow­don@ypn.co.uk Twit­ter: @RosSnow­donYPN

BRI­TAIN’S BIGGEST re­tailer Tesco bucked a grim start to the year for the re­tail sec­tor with a 28 per cent jump in op­er­at­ing prof­its after a year of strong progress.

The re­sults un­der­line chief ex­ec­u­tive Dave Lewis’s re­cov­ery strat­egy of low­er­ing prices and stream­lin­ing prod­uct ranges.

Tesco con­firmed its medi­umterm sav­ings and profit tar­gets and said the in­te­gra­tion of whole­saler Booker, which it bought for £3.7bn last month, is well un­der­way.

Fol­low­ing the deal, Tesco will pro­vide food to restau­rants, bars and smaller gro­cers and £200m of an­nual syn­er­gies are tar­geted within three years.

Tesco’s re­sults are in sharp con­trast to the ma­jor­ity of the re­tail sec­tor as bru­tal trad­ing con­di­tions have forced Toys R Us UK, elec­tri­cals group Maplin and drinks whole­saler Con­vivi­al­ity into ad­min­is­tra­tion. Fash­ion re­tailer New Look and floor cov­er­ings firm Car­petright have had to close stores.

Tesco re­mains the largest of Bri­tain’s su­per­mar­kets by a clear mar­gin, hav­ing a mar­ket share of 27.6 per cent, ac­cord­ing to the lat­est Kan­tar World­panel fig­ures. It is also the fastest grow­ing of Bri­tain’s big four su­per­mar­kets along side Brad­ford-based Mor­risons.

Mr Lewis said: “With three years under our belt Tesco is grow­ing again, re­cov­er­ing prof­itabil­ity and gen­er­at­ing sig­nif­i­cant cash.

“The merger with Booker al­lows us to build on this tra­jec­tory.”

Tesco’s shares have risen 13 per cent over the last year and are close to a three-year high. How­ever, they re­main be­low the 230p they were at when Mr Lewis joined in Septem­ber 2014.

This re­flects cau­tion about the on­go­ing chal­lenge of the dis­coun­ters and on­line play­ers.

“Whilst we take some com­fort from what it is we have done, we are very clear that there’s more to do,” said Mr Lewis. “It’s def­i­nitely not job done.” Tesco re­ported a 28.4 per cent jump in underlying op­er­at­ing prof­its to £1.64bn for the year to Fe­bru­ary 24.

Group sales rose 2.3 per cent to £51bn.

The out­come was helped by a strong end to the year in the UK, with fourth quar­ter like-for-like sales up 2.3 per cent – a ninth straight quar­ter of growth.

The group also an­nounced its first end of year div­i­dend since 2014, with a fi­nal pay­out of 2p, giv­ing a 3p full year div­i­dend for share­hold­ers.

On a bot­tom line ba­sis, pre-tax prof­its leapt to £1.3bn from £145m after one-off costs weighed on the pre­vi­ous year’s re­sult.

Tesco’s full-year re­sults showed gen­eral mer­chan­dise and non-food sales re­mained under pres­sure over the year, fall­ing by 0.4 per cent amid a tough re­tail mar­ket, al­though shop­per de­mand re­mained ro­bust for food, with sales up 2.9 per cent.

Tesco said mar­ket con­di­tions have re­mained chal­leng­ing with con­tin­ued cost price in­fla­tion.

It said it has worked hard with its sup­plier part­ners to mit­i­gate price in­creases wher­ever pos­si­ble and it made a sig­nif­i­cant in­vest­ment in the first half to hold back in­fla­tion and pro­tect cus­tomers.

In­fla­tion has eased back over the year, down by 0.8 per cent for food ranges ac­cord­ing to the group, but it said pres­sure on prices re­mains.

“Our job is to min­imise that,” Mr Lewis said.

He said UK con­sumers had been re­silient, but added it had been “dif­fi­cult for a while and those chal­lenges re­main”.

There was also a hit from the ‘Beast from the East’ after the group’s fi­nan­cial year end, which saw some stores close and de­liv­er­ies af­fected.

Mr Lewis said the chain re­cov­ered quickly, adding there was un­likely to be a ma­te­rial im­pact on per­for­mance.

Laith Kha­laf, se­nior an­a­lyst at Har­g­reaves Lans­down, said: “Tesco is en­joy­ing a re­nais­sance, and its turn­around plan is lit­er­ally pay­ing div­i­dends to share­hold­ers.

“The out­look is now look­ing more pos­i­tive for the gro­cery sec­tor after a pretty chal­leng­ing year in 2017.

“The in­fla­tion­ary squeeze looks to be eas­ing on con­sumer purses, as is the ex­change rate pres­sure on the cost of stock­ing shelves.”

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