Tesco resists slump to make record profit of $4.6 bn

Tesco resists slump to make record profit of $4.6 bn
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First Published: Tue, Apr 21 2009. 02 19 PM IST
Updated: Tue, Apr 21 2009. 02 19 PM IST
London: Tesco, the world’s No.3 retailer, showed its resilience to the economic downturn, posting a 10% rise in underlying annual profit to £3.13 billion ($4.6 billion), a record for a British retailer.
Shares in the supermarket group, which employs 440,000 people in 4,000 stores across 14 countries, jumped as much as 5% in early Tuesday trading and boosted retail stocks across Europe which have been hit by a steep economic downturn.
Tesco said sales growth in its main British market had accelerated in its new financial year.
Chief executive Terry Leahy told Reuters consumer spending was stabilising, though it was too early to forecast a recovery.
He also said it was impossible to say when Tesco’s US business would break even because of a deep recession there.
Tesco had planned for its US Fresh & Easy chain to break even at the end of its 2009-10 fiscal year, but said it now expected the business to make a similar trading loss to the £142 million for the year just ended.
Leahy said he was “absolutely” committed to the U.S. chain.
Retailers across the world have been struggling as shoppers curb spending amid rising unemployment. France’s Carrefour, the world’s No.2 retailer, last week reported its first quarterly decline in sales for six years.
On Tuesday, British luxury goods group Burberry said revenue growth slowed in the second half of its fiscal year, though Associated British Foods said its discount clothes unit Primark was thriving.
Asian Growth
Tesco said strong growth in Asia, boosted by last year’s acquisition of Homever stores in South Korea, and robust profit margins in Britain had helped to offset more sluggish growth in Europe and losses in the United States.
Sales rose 15.1% to 59.4 billion pounds in the 53 weeks ended 28 February. The dividend was raised 9.7% to 11.96 pence.
Analysts’ median forecast was for Tesco to make profit before tax and one-off items of £3.04 billion, according to a Reuters Estimates poll of 19.
“Another year of solid top and bottom line delivery,” Cazenove analysts said in a research note. “Current trading is showing an improved trend against tougher comps (comparative figures in the same time last year) and forecasts look secure.”
At 12:40am, Tesco shares were up 4.6% at 347.2 pence, valuing the business at about £27.4 billion and helping the DJ Stoxx European Retail Index to rise 1.8%, making it the best performing sector in Europe.
Improving trend
Tesco shares have matched the pan-European index over the past year but trade at a discount as a multiple of forecast earnings to rivals such as J Sainsbury and Morrison on concerns it is losing British market share.
Sales at Tesco’s British stores open at least a year, excluding petrol, rose 3.4% in the first six weeks of its new financial year, up from 2.7% in the fourth quarter.
Sainsbury posted a 6.2% rise in underlying sales for the 11 weeks to 21 March, but Tesco says its growth is being curbed by shoppers swapping to its cheaper discount brand range.
Britain accounts for about 70% of Tesco’s sales and over three-quarters of its trading profit.
Tesco said it planned to cut capital expenditure to £3.5 billion this year from £4.7 billion in 2008-09, with lower investment in Britain and more cautious expansion in some foreign markets, like the United States.
Nonetheless, the group expects to add 26,000 jobs and over 8 million square feet of new space, including 75% abroad.
Net debt jumped over 50% to £9.6 billion to pay for an acquisition in South Korea and a deal to buy Royal bank of Scotland out of a financial services joint venture.
Leahy said the group planned to cut this by about £1 billion this year. He also said Tesco would target cost savings similar to the £540 million achieved last year.
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First Published: Tue, Apr 21 2009. 02 19 PM IST
More Topics: Company Results | Tesco | Supermarkets | UK | Economy |