Tesco shakes off gloom with profit
By Rachel Sanderson Reuters
Published: April 15, 2008
LONDON: Tesco , the world's third-biggest food retailer, reported a record 2.8 billion pound annual profit on Tuesday and said it had made a strong start to its new financial year, driving up its shares.
The retailer, moving to knock down a rash of negative speculation about its business in recent weeks, added a market-pleasing property deal and revealed that sales at its nascent U.S. venture "Fresh & Easy" were ahead of budget.
Chief Executive Terry Leahy also unusually provided a growth forecast of 3 to 4 percent for the full year 2008/2009.
"Tesco have come storming back after all the recent criticism, with strong vibes about trading both in the UK and the United States and their up-to-date property valuation," Pali International analyst Nick Bubb said in a note.
Its shares rose more than 4.5 percent to 409 pence, strongly outperforming the DJ Stoxx index of European retailers .
Citigroup analyst James Anstead welcomed the forecast and the announcement of a property deal worth 207 million pounds with Prudential valuing Tesco's total portfolio at 31 billion pounds -- a 57 percent premium to book value.
Leahy told Reuters the tough economy, with rising energy prices and mortgage repayments crimping spending, meant shopper habits were changing but Tesco tended to "grow market share in this kind of environment".
"It is not all gloom, there are opportunities," Leahy said in an interview. "Customers are more likely to look for value and value is one of the strengths for Tesco. We are a company for all seasons."
Tesco, which has a more than 30 percent share of the grocery market, double that of its nearest rivals Asda and J. Sainsbury , said trading profit rose to 2.75 billion pounds in the 52 weeks to February 23, led by strong growth in its international and online businesses.
Like-for-like sales, excluding fuel, in Tesco's core market rose 3.5 percent, and were up over 4 percent in the first five weeks of its new financial year. This was slower than the 4.1 percent growth seen in the third quarter, however.
U.S. "AHEAD OF BUDGET"
Sales from its international operations -- spanning 12 countries from China to Thailand, Turkey and the United States, the world's toughest consumer market -- also grew strongly, rising 22.5 percent at constant exchange rates.
In the United States, where it now has 60 stores after launching last November, sales were ahead of budget and sales densities were higher than the U.S. supermarket average with the best stores exceeding $20 per square foot, Tesco said.
But with Tesco aiming for a total of 200 stores open by the end of this financial year, U.S. trading losses are set to widen to 100 million pounds from 62 million pounds last year, the company said.
In Britain, where competition is heating up for a share of shoppers' budgets squeezed by higher mortgage repayments and energy bills, Leahy said Tesco was responding to the toughening economic conditions with better promotions.
"We always want to keep the pressure up on price," he said.
Tesco's upbeat figures were at odds with retail data released on Tuesday showing like-for-like retail sales fell in March for the first time in two years. The grim national data indicated that it is taking share away from general retail rivals like Marks & Spencer .
Still, Tesco's sales from non-food -- ranging from clothes to electrical goods and garden furniture -- slowed in the second half to 8 percent growth from 10 percent in the first half of the year. Clothing in particular slowed to growth of 6 percent.
But it saw strong performance in online operations, with Tesco Direct sales increasing to 180 million pounds from virtually a standing start. Tesco.com saw a 31 percent increase in sales to 1.6 billion pounds.
(Additional reporting by Mark Potter; Editing by Quentin Bryar and Elizabeth Fullerton)
Fresh & Easy Buzz Editor's Note: Read our analysis of Fresh & Easy USA based on today's Tesco annual sales and profit report here