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Tesco sales rise again but profits tumble Tesco sales rise again but profits tumble
(35 minutes later)
Sales at Tesco have risen for a third consecutive quarter in a sign that recovery at Britain’s largest supermarket group is gaining momentum.Sales at Tesco have risen for a third consecutive quarter in a sign that recovery at Britain’s largest supermarket group is gaining momentum.
Like-for-like sales in the UK, excluding those at stores open for less than a year, rose by 0.9% in the second quarter. That was the top end of analysts’ expectations and an improvement on the first quarter, when underlying sales increased by 0.3%.Like-for-like sales in the UK, excluding those at stores open for less than a year, rose by 0.9% in the second quarter. That was the top end of analysts’ expectations and an improvement on the first quarter, when underlying sales increased by 0.3%.
Shares in the company rose 9% to 206p after the results were announced, making it the FTSE’s biggest riser. The positive sentiment lifted the whole sector, with shares in Sainsbury’s and Morrisons also rising.
Pre-tax profits for the first half tumbled by 28% to £71m but underlying earnings, excluding one-off items, jumped by 60% to £596m.Pre-tax profits for the first half tumbled by 28% to £71m but underlying earnings, excluding one-off items, jumped by 60% to £596m.
The retailer outlined plans to slash costs by a further £1.5bn by 2019-20, including a simplification of stores and a more efficient distribution system.The retailer outlined plans to slash costs by a further £1.5bn by 2019-20, including a simplification of stores and a more efficient distribution system.
Dave Lewis, the chief executive, said: “The business is moving out of crisis and gaining real confidence in recovery. We have made further strong progress in the first half, with positive like-for-like sales growth across all parts of the group as we reinvest in our customer offers while rebuilding profitability in a sustainable way.”Dave Lewis, the chief executive, said: “The business is moving out of crisis and gaining real confidence in recovery. We have made further strong progress in the first half, with positive like-for-like sales growth across all parts of the group as we reinvest in our customer offers while rebuilding profitability in a sustainable way.”
Phil Dorrell, a partner at the consultancy Retail Remedy, said Lewis was right to feel confident. “We are entering the golden quarter for grocery and Tesco will be up against a resurgent Morrisons, a wounded but not down Asda and a Sainsburys armed with Argos. Tesco will have room to push further on price if they need to and a rash of offers lined up ready to deploy. Dave Lewis projects confidence and confident he should be.”
Lewis joined Tesco from Unilever in September 2014, tasked with bringing to a halt a three-year sales slide. Within three weeks of his arrival he was engulfed in the biggest crisis in the company’s history when a whistleblower alerted him to an accounting scandal.
Tesco suspended four executives when it discovered its profits had been artificially inflated, and the Serious Fraud Office (SFO) launched an investigation into the company.
The retailer made made a £6.4bn annual loss for 2014 – one of the biggest in British corporate history – and Lewis has axed thousands of jobs in an attempt to cut costs.
Last month the SFO charged three former senior directors at Tesco with fraud in relation to the accounting scandal at the supermarket chain. Carl Rogberg, the former finance director of Tesco UK, Christopher Bush, the former managing director of Tesco UK, and John Scouler, the supermarket group’s former commercial director for food, face up to 10 years in jail if found guilty of fraud by abuse of position and seven years for false accounting. They have pleaded not guilty to both charges.
Lewis said on Wednesday there were big challenges facing the company when he arrived two years ago. “The business has been objective and open about how it wanted to deal with the challenges. It’s significant that we say today that we feel the business has stabilised,” he said.
“It’s a tough market but we have confidence that our relative strength within it will help us to further turnaround the business.”
John Ibbotson from the consultancy Retail Vision, said while there was still a long way to go, Tesco was making progress. “The slickest thing about Dave Lewis’s approach has been its simplicity: reducing prices to regain competitiveness in the core UK business, rebuilding all-important customer trust and strengthening the balance sheet by selling off non-core operations and stores,” he said.
“Yes, the turnaround has been slower than some would have liked, but let’s not forget that Tesco’s fall from grace was extreme.”
Ibbotson said the grocer could struggle to reach its previous highs. “While Tesco is back on track and could soon be dominant again, it’s unlikely to be the imperious force it once was. While improving, its profits are significantly lower than they were in its heyday.”