Bloomberg News

Tesco Profit Gains as Asian Growth Offsets Slack U.K. Sales

October 05, 2011

(Updates with opening share price in fifth paragraph.)

Oct. 5 (Bloomberg) -- Tesco Plc, the biggest U.K. retailer, said first-half profit climbed 3.7 percent as gains in Asia and a narrower loss in the U.S. helped offset the company’s worst U.K. sales performance in at least six years.

Trading profit, a measure which excludes property gains, rose to 1.77 billion pounds ($2.7 billion) in the six months ended Aug. 27, the Cheshunt, England-based company said today.

The initial reaction to Tesco’s Big Price Drop campaign has been “very positive,” Chief Financial Officer Lawrie McIlwee said in a Bloomberg Television interview. The retailer cut prices on 3,000 every-day items such as bread and milk last month to help reverse four years of market-share erosion. Tesco is also focusing on improving returns on capital in its 13 international markets and said a plan to break even in the U.S. in fiscal 2013 is showing “promising early results.”

“I am pleased that excellent growth in Europe and Asia, as well as an encouraging performance in the United States, have supported further progress in the first half, despite the challenges of subdued demand in the U.K., particularly in non- food categories,’” Chief Executive Officer Philip Clarke said in the statement.

Tesco’s sales at U.K. stores open a year or more fell 0.6 percent, excluding fuel and value-added tax.

Stock Rises

Tesco fell as much as 2.1 percent in London trading and was down 7.6 pence, or 2 percent, at 372.5 pence at 8:25 a.m. The stock has declined 12 percent this year, less than Carrefour SA’s 37 percent drop and the 25 percent slide by smaller U.K. rival J Sainsbury Plc.

Losses at the U.S. chain Fresh & Easy, which Tesco started in 2007, narrowed to 73 million pounds from 95 million pounds a year earlier, the grocer said. Tesco is opening new outlets in northern California and building customer numbers by adding in- store bakeries and freshly prepared meals.

Trading profit in Asia, where Tesco last month announced it plans to exit Japan, rose 19 percent, buoyed by gains in Malaysia, China and Thailand. In Europe, where the retailer has stores in the Czech Republic, Poland, Hungary, Slovakia and Turkey, profit rose 12 percent.

In the U.K., trading profit rose 4.5 percent to 1.27 billion pounds as new store openings helped boost revenue.

Smaller Market Share

Tesco’s share of U.K. grocery spending fell to 30.4 percent in the 12 weeks through Sept. 4 from 30.8 percent a year earlier, according to Kantar Worldpanel research.

The retailer unveiled the Big Price Drop campaign last month in a bid to win shoppers from rivals including Wal-Mart Stores Inc.’s Asda, cutting 500 million pounds from the price of basic items such as milk and vegetables.

The company said it’s “broadly comfortable with current market consensus forecasts” for fiscal 2012, adjusted for a provision at its banking business. The company reported a 57 million-pound increase in its provision for payment-protection insurance at Tesco Bank.

Trading profit is from Tesco’s continuing operations and excludes results from the Japanese unit that the company has decided to sell.

--Editors: Tom Lavell, Paul Jarvis

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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