February 20, 2018

British retail giant Tesco makes a 'turnaround', reports a rise in profits

05 October 2017, 12:24 | Kenneth Drake

Tesco hails strong progress as sales rise again

Tesco supermarket shopping bags are

The company said its turnaround is firmly on track.

Group sales were up 3.3% to £25.2bn for the 26 weeks ending August 26 2017, while United Kingdom like-for-like sales - excluding sales from stores opened in the past year - grew by 2.2%.

Dave Lewis, the group's CEO, said: "We are continuing to make strong progress".

Chief Executive Dave Lewis explained that the announcement reflected the confidence that they could build on their strong performance to date and that in doing so, they could create long-term sustainable value for all of their stakeholders.

Earnings per share of 5.21p were back to respectability after the breakeven 0.42p a year ago, while some of £1.1bn of retail operating cashflow enabled a 25% reduction in net debt to £3.3bn and the return of the dividend since it was cut in the wake of the 2014 accounting scandal.

It made operating profit before one off items of 759 million pounds ($1 billion) for the six months to August 26 - ahead of analysts' forecasts.

Tesco said revenues grew by 3.7 percent to £28.3 billion over the reporting period, with customers attracted to Tesco stores and its online offerings by the "lowest level of food price inflation. amongst peers" operating in the UK.

He said: "It's a significant milestone in the recovery of the business and one which demonstrates the confidence we and the board have in our plans".

The results come as Tesco awaits the findings of an investigation from the Competition Markets Authority into its proposed £3.7 billion takeover of wholesaler and convenience retailer Booker, with provisional results due later this month and a final decision in December.

Despite facing stiff competition from discount rivals like Lidl and Aldi, Tesco's fresh food performed well in the United Kingdom with sales up by 1.5 per cent.

Tesco paid a dividend for the last time in the 2014-15 financial year, before it admitted that it had overstated profits by about 250 million pounds.

While the numbers and story behind Tesco at the moment looks encouraging, our view is that competition is here to stay and will be ramped up by the German discounters making the margin improvement targets more hard to achieve over time. "While Sainsbury's tests a checkout-free payment app and Costcutter trials fingerprint payment, Tesco's new Tesco Pay+ is a much simpler yet effective move", he said.

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