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Tesco shares surge as rising sales continue

Published 05/10/2016

Tesco posted a 28.3% fall in bottom-line pre-tax profits to £71 million for the six months to August 26 after being hit amid the sector's fierce price war
Tesco posted a 28.3% fall in bottom-line pre-tax profits to £71 million for the six months to August 26 after being hit amid the sector's fierce price war

Supermarket giant Tesco saw shares race higher after ringing up its third quarter in a row of rising sales and unveiling a three-year plan to get profits back on track.

Shares in Britain's biggest grocer jumped 13% to their highest level in more than a year as the group revealed a 0.9% surge in UK like-for-like sales in the second quarter.

Tesco boss Dave Lewis cheered the group's bounceback after a difficult two years and assured the chain was on track to hit its full-year earnings target.

But the group counted the cost of its fightback amid a fierce supermarket price war, with half-year profits falling by 28.3% to £71 million for the six months to August 27.

Mr Lewis , who has been leading an overhaul since he took over from Philip Clarke in 2014, outlined aims to slash costs by £1.5 billion over the next three years to help boost margins and return the group to bottom line profit growth.

A round £550 million of these savings will come from changes to how its stores operate, including cutting back further on 24-hour trading and restocking store shelves during the day rather than at night.

Mr Lewis said the plans were not about cutting jobs.

The half-year figures mark a turnaround after a torrid couple of years, when Tesco posted the biggest loss in its history and was hit by a £326 million accounting scandal.

On an underlying basis, Tesco's UK and Ireland first-half earnings more than doubled to £389 million from £164 million a year earlier, while group earnings lifted 60.2% to £596 million.

Mr Lewis said: "We do believe that, after two years, we are stabilising the business and have seen signs of our competitiveness established in the marketplace."

He said it was "just the start" of the group's recovery and cautioned the market remains "challenging and uncertain", with t he food price deflation that has been weighing on the sector unlikely to ease off soon.

The group also revealed the fallout from the Brexit vote had seen its staff pension scheme deficit balloon by £3.2 billion to £5.9 billion.

Retail analysts at Bernstein said it was a "fantastic set of results for Tesco, delivering on all aspects of the UK recovery".

They noted Tesco's UK like-for-like sales by volume and transaction have grown for 21 months straight, showing "the hallmarks of a retail recovery".

The results come amid a high-profile court case involving three former Tesco executives.

Carl Rogberg, 49, Chris Bush, 50, and John Scouler, 48, denied charges in relation to the 2014 accounting scandal when they appeared at Westminster Magistrates' Court last month.

They have been charged with fraud by abuse of position and false accounting and are due to appear in court again on October 20.

Tesco is also facing legal action from a group of 60 large investors who claim to have lost £150 million following the discovery of the accounting black hole.

Mr Lewis said the shareholder action was not a "distraction" and it would deal with the claims "if and when they come".

Mr Lewis admitted there would be some "trimming" to headcount, but refused to be drawn on numbers.

He told the Press Association that Tesco is consulting affected staff, some of whom may be put through a "selective redundancy" process if appropriate redeployments cannot be agreed.

But he stressed the number of staff affected would be "numerically tiny - completely tiny in the scheme of Tesco".

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