Wednesday 23 October 2019

Tesco Irish sales hit €1.3bn as shares dip on Asia profit slump

Talking shop: Tesco CEO Dave Lewis said the group had made a good start to the year and enjoyed its 11th consecutive quarter of growth in Ireland and the UK
Talking shop: Tesco CEO Dave Lewis said the group had made a good start to the year and enjoyed its 11th consecutive quarter of growth in Ireland and the UK
John Mulligan

John Mulligan

Tesco's like-for-like sales in Ireland rose 3.1pc during the first half of the group's financial year, as its performance continues to improve in a competitive grocery market, according to results from the grocery retailer.

That performance compared to a 1.1pc rise in like-for-like sales in Ireland during the first half of its previous financial year.

Excluding Vat but including fuel, Tesco's revenue in Ireland hit €1.32bn in the 26 weeks to August 25. That compared to revenue of €1.23bn in the first half of its previous financial year, which was also for a 26-week period.

It said that its own brand volume sales in Ireland jumped 9pc in the latest period. The retailer has focused significantly on delivering value price-points for consumers, and also relaunched its own-brand products.

Tesco shares plunged as much as 10pc however, as the group first-half performance missed forecasts. Operations in Poland and Thailand weighed on the business. The share decline also came despite an improved performance in its key UK market.

Tesco's total sales in Ireland, excluding fuel and excluding Vat, were 8.4pc higher at actual exchange rates during the first half of the group's financial year, as it benefited from a stronger euro versus sterling.

At constant foreign exchange rates, its sales in Ireland excluding fuel and Vat were up 7.2pc in the first half.

Tesco has 152 stores in Ireland, with a mix of Tesco and Tesco Express outlets. It opened two of the outlets since the end of the last financial year.

The most recent figures from research group Kantar Worldpanel show that Tesco remains the largest grocery retailer in Ireland, with a 22.1pc share of the market.

Group sales at the retailer were 12.5pc higher at £28.3bn (€31.8bn) on a constant currency basis in the first half of the financial year. Tesco's group operating profit before exceptional items and other items was £933m (€1.04bn), which was 23.9pc higher year-on-year.

But that was less than the £978m that had been expected by analysts.

The retailer's like-for-like sales in the UK were up 2.3pc.

CEO Dave Lewis, who was parachuted in to lead Tesco following an accounting scandal in 2014, said the group has made a "good start" to the year. He said the combined sales performance across Ireland and the UK was its 11th consecutive quarter of growth.

The group profit shortfall was explained by a 29.1pc decline in profit in Asia and a 3.3pc reduction in central Europe, which partly offset growth of 47.6pc in the UK and Ireland as Tesco seeks to fight off intense competition.

Chief financial officer Alan Stewart said: "I don't think the market had fully factored in the Asian side (of the business) but we're really encouraged by the UK."

Tesco currently has a leading 27.4pc share of Britain's grocery market, according to industry data, although it could be overtaken by Sainsbury's proposed £7.3bn (€8.2bn) takeover of Walmart's Asda.

The tie-up between Tesco's two nearest competitors, which the UK competition regulator is probing, is driven in part by the rise of discounters Aldi and Lidl, which are gaining ground on Britain's big four grocers, as well as the growth of Amazon.

In Asia second quarter like-for-like sales fell 4.8pc, which reflected Tesco's decision to exit non-profitable cash and carry sales in Thailand. Underlying sales in the Central Europe division fell 2pc, reflecting weak sales in Poland.

Mr Lewis said the difficulties in Thailand and Poland did not imperil Tesco's key margin target for the group to earn between 3.5p and 4p pence of operating profit for every pound customers spend by the end of its 2019-20 financial year.

Tesco was "firmly on track" to hit that target as well as cost savings of £1.5bn, he said.

Additional reporting by Reuters

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