Sunday 11 December 2016

Tesco makes £3.8bn despite UK slump

Holly Williams

Published 19/04/2011 | 09:34

Overseas performance helped Tesco notch up another year of record annual underlying profits, up 12.3pc to £3.8bn (€4.3bn). Photo: Getty Images
Overseas performance helped Tesco notch up another year of record annual underlying profits, up 12.3pc to £3.8bn (€4.3bn). Photo: Getty Images

Supermarket giant Tesco revealed a fourth-quarter sales slump today as it admitted it missed UK growth targets.

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The group said UK like-for-like sales excluding VAT and fuel fell 0.7pc in the three months to February 26 - leaving overall sales flat over the financial year as it struggled to combat tough consumer spending conditions.

But a better performance overseas helped the group notch up another year of record annual underlying profits, up 12.3pc to £3.8bn (€4.3bn).

The UK's biggest supermarket chain said record petrol prices and government austerity measures had hit shoppers hard, but added that it had failed to keep up with the wider market in areas such as non-food.

UK general merchandise sales dropped 3.3pc in the second half as it underperformed in clothing and electricals.

The group said: "We didn't achieve our planned growth in the year and this was only partly attributable to the deterioration in the consumer environment during the second half.

"We can do better and we are taking action in key areas - for example, to drive a faster rate of product innovation and to improve the sharpness of our communication to customers."

Today's sales results mark a tough debut for new chief executive Philip Clarke, who took on the top job from Sir Terry Leahy last month.

He outlined a six-point plan for the year ahead, including a priority in the UK to improve its non-food sales performance.

However, Tesco gave little hope that retail conditions in the UK would improve this year.

It said trading would remain challenging, particularly on non-essential items, as consumers tighten their belts.

Tesco's fourth-quarter sales drop marks the first such dip into negative territory for nearly two years.

It last saw sales in the red during the second quarter of the 2009/2010 financial year, when the UK was in the middle of recession.

But the group is not the only major chain suffering from lower consumer spending.

Sainsbury's recently shocked the market with its fourth-quarter figures, which revealed like-for-like growth of 1pc excluding fuel, implying an underlying fall of up to 1pc when VAT is stripped out.

Mr Clarke told the BBC Radio 4 Today programme the group would have to tap into a trend for far more cautious consumer spending.

He said: "Customers are looking for value, they're looking to adjust to higher levels of inflation, to higher levels of tax, to the fuel prices - so they're looking for value, eating out less, using cars a bit less, acclimatising the economic situation.

"What we've got to make sure we do is set the business up to trade in those circumstances."

Mr Clarke's ambition to up the ante in the UK signals even tougher competitive pressure for retail rivals, according to retail analyst Matthew McEachran, at Singer Capital Markets.

He said: "With over £5bn of sales and space potentially increasing by around 10pc a year, intensification of their offer will result in more pressure for a number of general retailers including those already having to compete harder."

Tesco's overall group profits, which rose 11.3pc to £3.5bn on a statutory basis, were driven by Asia and Europe - contributing nearly 70pc of growth in the year.

Trading profits leapt 17.5pc to £570m in Asia after like-for-like sales rose 2.3pc across the region, while Europe also saw a double-digit profits rise, up 13.7pc.

Its fledgling US business, Fresh & Easy, remained in the red with losses widening to £186m.

But sales growth of 9.4pc over the year painted an improving picture and Tesco said it remained on track to break even within two years.

It also confirmed aims to launch its first range of mortgages through Tesco Bank in the UK this year as it looks to compete against the major high street players.

Tesco Bank saw annual profits rise 5.6pc as it continued to increase customer accounts, up 11pc in credit cards, 17pc in loans and 8pc in car insurance.

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