Tesco reports steady profits rise

Posted by admin on 30 September, 2008 under Business news | Read the First Comment

UK supermarket giant Tesco has reported a steady rise in half-year profits despite the tough retail environment.

The company made group profit before tax of £1.43bn in the 26 weeks to 23 August, an 11.3% increase on the same period last year.

Group sales increased 14.1%, buoyed by robust international sales which were up by 26.8%.

Excluding petrol, like-for-like sales – which strip out the impact of new stores – were up 3.7% in UK stores.

Like-for-like sales grew 4% in the second quarter, an increase from growth of 3.5% in the first quarter.

Chief executive Terry Leahy said Tesco was “at its best in tough markets” and could respond to the changing needs of customers.

“The same number of people are coming, they’re just hard up and need to spend a little bit less” Terry Leahy

“That’s why we have been able to make good progress this year, despite facing into powerful economic headwinds and carrying planned start-up losses in the US,” he said.

“Our business is strong, broadly-based, increasingly international and, I believe, well-placed not just to cope with the challenges which lie ahead but also to grasp the growth opportunities open to us by continuing to invest in our strategy.”

The results were “very much in line with expectations” said Blue Oar Securities analyst Greg Lawless.

Increasing competition

Tesco has dominated the supermarket sector in the UK for some time.

However, the credit crunch and tighter household budgets have meant cheaper alternatives such as Lidl, Aldi and Asda have been eating away at Tesco’s UK market share, which currently stands at more than 30%.

Tesco has responded by releasing a new range of some 400 low-cost products last week in order to maintain its position in the market.

“The same number of people are coming, they’re just hard up and need to spend a little bit less,” Mr Leahy told the BBC.

He conceded that in non-food sales had seen better times – in the UK they grew 4% during the first half, compared with 8% growth in the second half of last year – but said this was “part and parcel” of being in the non-food market.

The supermarket’s chief executive added that he expected growth in European and Asian markets to carry Tesco through the difficult trading period.

Internationally, Tesco said its Fresh & Easy stores in the US – which are in their first year of trading – had seen good sales, with the “average running at $11 per square foot per week which is already substantially higher than the US supermarket industry average”.

Tesco serves more than 20 million customers every week.

News reported by The BBC