Tesco profits rocket as turnaround gathers pace

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Tesco has posted surging half-year profits as the retailer clocked up seven consecutive quarters of sales growth in its core UK business.

The supermarket giant said statutory pre-tax profit rocketed 691.5% to £562m in the six months to August 26, as group sales advanced 3.3% to £25.2bn.

Tesco’s operating profit before exceptional items − the grocer’s preferred profit measure − jumped 27.3% to £759m during the period.

Chief executive Dave Lewis hailed Tesco’s “strong progress” during the period, in which UK like-for-likes climbed 2.2% and operating profit in its core UK and Irish business jumped 21.1% pre-execptionals to £471m.

“All of this is possible because of the focus we have placed on serving shoppers a little better every day. Our offer is more competitive and more customers are shopping at Tesco.”

Dave Lewis, Tesco

Tesco’s group operating margin, which Lewis wants to grow to 3.5% to 4% by 2019/20, grew from 2.2% to 2.7%.

Tesco said it would pay a dividend for the first time in three years, which it said reflected “board confidence”.

The last time Tesco paid a dividend was in the 2014/15 financial year, just before it shocked the market by admitting it had overstated profits by about £250m.

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.

“All of this is possible because of the focus we have placed on serving shoppers a little better every day. Our offer is more competitive and more customers are shopping at Tesco.”.

Turnaround progresses

Tesco said it had made progress against its six strategic drivers. It said its brand health had strengthened, it had made further cost savings of £259m, which it said put it on track to reduce costs by £1.5bn in the medium term. It also generated £1.1bn of retail operating cash.

Tesco said it has improved the mix across its geographies and channels and had achieved 1.6% like-for-like growth in its UK Extra format.

The grocer released a further £175m from property after it sold 50 sites over the half and pushed ahead with innovations such as contactless Clubcard, its roll-out of same-day delivery and more than 800 new products.

Capital expenditure is expected to hit £1.1bn in the current year and Tesco said it will spend between £1.1bn and £1.4bn per year going forward.

UK performance

The retailer achieved like-for-like growth across all UK formats over the half and online grocery sales rose 4.6%. Clothing like-for-likes jumped 3.5% driven by more full-price sales, which the grocer said reflected the quality and strength of its F&F brand.

Tesco said UK market conditions have been challenging with inflationary pressure felt throughout the half, but it had worked with suppliers to minimise price increases for customers.

Overall sales inflation was around 1% less than the rest of the market, Tesco said.

The grocer reduced the level of short-term promotions in both household and general merchandise categories to focus on “simpler, clearer and more stable prices”. It said multi-buy promotions had been cut by a further 10% over the half.

Fresh food performed particularly well over the half, with sales up 1.5% over the half, and was now in 70% of customers’ baskets. Own-label ranges also performed well, with sales up 4.6% year-on-year.