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Tesco to pay first dividend in 3 years as profit beats estimates

Amid a Brexit-induced slump in sterling that has squeezed margins at UK retailers, CEO Dave Lewis has raised prices less than rivals, seeking to offset the impact by using Tesco’s scale to eke out better deals from suppliers and slash costs elsewhere. Photo: Reuters (Reuters)Premium
Amid a Brexit-induced slump in sterling that has squeezed margins at UK retailers, CEO Dave Lewis has raised prices less than rivals, seeking to offset the impact by using Tesco’s scale to eke out better deals from suppliers and slash costs elsewhere. Photo: Reuters (Reuters)

Tesco will pay its first dividend in three years after reporting first-half profit that surpassed analysts’ estimates

London: Tesco Plc will pay its first dividend in three years after reporting first-half profit that surpassed analysts’ estimates.

Operating profit rose 27% to £759 million ($1 billion) before one-time items, Tesco said Wednesday. Analysts expected £703 million.

“Sales are up, profits are up, cash generation continues to strengthen and net debt levels are less than half what they were when we started our turnaround three years ago," chief executive officer Dave Lewis said in a statement.

Tesco’s performance will raise investor confidence that Lewis will reach his goal of boosting profit margins. Amid a Brexit-induced slump in sterling that has squeezed margins at UK retailers, Lewis has raised prices less than rivals, seeking to offset the impact by using Tesco’s scale to eke out better deals from suppliers and slash costs elsewhere.

Tesco will pay an interim dividend of 1 penny per share. Lewis scrapped Tesco’s dividend in early 2015, opting instead to reinvest profits to better compete with discounters Aldi and Lidl. Despite the dividend reinstatement, Tesco remains saddled with a £2.4 billion pension deficit and a junk credit rating.

In the UK, same-store sales rose 2.1% in the second quarter. Analysts expected an increase of 2.5%. UK grocery prices have increased more than 3% across the market for six consecutive months, according to Kantar Worldpanel. Bloomberg

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