Associated Press: Tesco Defies Retail Slump, Full Year Profits Rise 12.3 Percent

April 15, 2008
By JANE WARDELL AP Business Writer
© 2008 The Associated Press


LONDON — Tesco PLC, the British-based grocer opening stores across the United States, reported a 12.3 percent rise in annual profits Tuesday, cheering investors amid an otherwise gloomy retail market.

Tesco refuted criticism of a push into the U.S., saying its Fresh & Easy Neighborhood Market stores have seen strong growth.

Tesco, Britain's dominant supermarket chain with more than 2,800 stores in 12 countries, posted net profit of 2.12 billion pounds ($4.2 billion) for the year ending Feb. 23, up from 1.89 billion pounds in the previous year.

Sales rose 10.9 percent to 47.3 billion pounds ($93.4 billion).

Tesco said sales in the current financial year had so far proved resilient to any economic downturn, with revenue up by more than 13 percent across the group over the first five weeks.

"We begin the new financial year confidently _ with a good start in the U.K., excellent progress in our established international markets and promising early performance from our investments in future growth, particularly in the United States, China and Turkey," Chief Executive Terry Leahy said.

Tesco has opened 59 Fresh & Easy stores in California, Nevada and Arizona since early November.

Some analysts suggested recently that the stores are faring poorly because of inventory problems, speculation that was heightened by Tesco's announcement this month that it would delay further store openings for three months.

Tesco said at the time it intended to use the pre-planned break to smooth out unspecified problems in the U.S.

"The response of customers to our offer has surpassed our expectations with our research regularly confirming that they like the quality and freshness of our ranges, as well as the prices and the convenient locations of the stores," the company said Tuesday.

Tesco did not provide separate U.S. sales figures, saying more details would be provided later this year.

But analysts said Tuesday's results negated much of the criticism, and shares jumped 7.3 percent to 419.50 pence ($8.28).

"Tesco (has) coming storming back after all the recent criticism, with strong vibes about trading in both the U.K. and the U.S. and their up-to-date property valuation," Pali International analyst Nick Bubb said.

Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers, said Tesco remained the "darling of the sector."

"Given the wider economic backdrop, the double digit growth which Tesco has maintained takes on more significance," he said.

Leahy acknowledged the retail industry is facing a difficult period amid concerns among consumers about a downturn in the global economy, but said that Tesco can benefit from that as consumers change their spending habits.

"Tesco has seen this trading environment before," he said. "It's an environment in the UK and around the world that we do well in, because we have a good reputation for value."

Tesco reported international sales grew 25.3 percent, by actual exchange rates, to 13.8 billion pounds ($27.3 billion), contributing 700 million pounds ($1.4 billion) to profits.
In its core British business, Tesco said sales rose 6.7 percent to 37.9 billion pounds ($74.8 billion). Sales rose 3.9 percent.