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Tesco to announce return to full-year profit as turnaround plan gathers pace

Published 12/04/2016

Tesco is set to announce a return to full-year profit tomorrow and unveil its first quarter of sales growth for three years as the turnaround under boss Dave Lewis gathers pace.

The s upermarket giant is expected to post bottom-line annual profits of £447 million as it moves on from its woes in 2014, which led to it posting a staggering £6.4 billion loss in the year to February 2015 - one of the biggest in UK corporate history.

This took into account massive one-off writedowns on the value of the supermarket's property portfolio, but even on an underlying basis, the group is set to see a vast improvement.

The City is pencilling in adjusted earnings of £932 million, down 3%, but far better than the 68% fall it reported a year earlier.

Mr Lewis revealed a surprise 1.3% jump in sales over the six-week Christmas period and the performance is likely to have carried over to its fourth quarter.

House broker Barclays estimates the grocer saw UK like-for-like sales rise by 0.8% in the final three months of its year - its first full quarter of growth since 2013.

Data last week from respected research body Kantar Worldpanel also suggested trading was improving markedly, saying sales slipped by just 0.2% in the 12 weeks to March 27, halving the pace of its sales decline as price cuts helped to bring back customers.

Analysts said the supermarket's recent performance is a further sign that Mr Lewis is turning the business around, since taking over from previous chief executive Philip Clarke in September 2014.

He took over at a grim time, with Tesco uncovering a £326 million accounting black hole in autumn 2014 that plunged the group into crisis.

Trading across the sector has also been hit amid falling food prices, compounded by a price war sparked by the increasing might of discounters Aldi and Lidl.

Tesco has shut 53 unprofitable stores since the start of its financial year and shelved plans to open a further 49 stores.

Mr Lewis has also cut prices across hundreds of lines, while making a raft of changes such as shutting Tesco's final salary pension scheme, disposing of its loss-making Blinkbox operation selling online videos, and moving its main headquarters from Cheshunt to Welwyn Garden City in a measure expected to save £250 million.

It is likewise offloading a raft of unwanted assets, the latest of which was the sale of some of its stake in Asian online business Lazada.

The supermarket giant said its overseas division had sold 8.6% of its Lazada stake to Chinese internet giant Alibaba for 129 million US dollars (£90.6 million).

It is also planning to sell off the Dobbies Garden Centres chain, coffee shop Harris & Hoole and restaurant Giraffe to focus on the main supermarket business, according to reports.

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

The broker added: "We believe that the major programme of cost reduction set around the mantra of simplification has delivered results that are evident in-store."

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