Sunday 26 March 2017

Tesco returns to profit as recovery takes hold

A Tesco logo
A Tesco logo

Ashley Armstrong

Tesco has inched back into the black following its battle to turn around the supermarket from the biggest loss in British corporate history.

The supermarket chain has posted a £162m pre-tax profit for the year ending 27 February, a dramatic swing from the £6.4bn loss it posted in 2015 on the back of heavy property writedowns.

Tesco has also posted its first quarter of UK sales growth in three years following a battle to turn around the supermarket chain. The supermarket posted a 0.9pc increase in UK like-for-like sales during its fourth quarter compared to a 1.5pc fall the previous quarter. Group like-for-like sales were up by 1.6pc during the period.

The boost in the last quarter has helped the supermarket to report a marginal 0.1pc lift in total group sales to £48.4bn. Operating profits, before exceptional items, were also 1.1pc higher to £944m.

“We have made significant progress against the priorities we set out in October 2014”, said Dave Lewis, chief executive.

“We have regained competitiveness in the UK with significantly better service, a simpler range, record levels of availability and lower and more stable prices.  Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case.”

Analysts at Shore Capital have said that the supermarket is "now operating more on the front foot in the UK".

Earlier this week Tesco fired the starting gun on its next wave of expected asset sales by offloading its stake in Singaporean online business Lazadato China's Alibaba for £90m.

The supermarket has recently hired advisers at Greenhill to explore the sale of its Dobbies Garden Centre business. It is also looking for buyers for its Giraffe restaurant chain, Euphorium bakery business and Harris & Hoole coffee shops which were bought by Mr Lewis' ousted predecessor, Phil Clarke, as an attempt to diversify the company into higher growth areas.

However, Mr Lewis has been jettisoning Tesco's operations that he no longer considers core to the supermarket's business.

Last year Tesco sealed a £4bn deal to sell its South Korean Homeplus business and offloaded its loss-making online video business Blinkbox, but decided to keep its Dunnhumby data analytics service after a failed auction.

Since taking the helm Mr Lewis has shut 53 unprofitable stores and shelved plans to open a further 49 supermarkets. He has also made a raft of changes such as shutting Tesco's final pension scheme and moved Tesco's historic headquarters from Cheshunt to Welwyn Garden City in a move expected to save £250m.  

In an effort to heap pressure on its "Big Four" rivals Tesco launched a "Brand Guarantee" price promotion in October which hands shoppers refunds at the till if their basket of 10 branded goods is cheaper elsewhere.

Meanwhile, it has also attempted to launch a fightback against discounters Aldi and Lidl by launching its own range of cheap "Farm Foods".

However, critics have claimed the move has backfired after it was revealed that the farms did not exist and the names such as Redmere Farms and Willow Farms were entirely fictional.

Telegraph.co.uk

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