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Tesco profits rebound as turnaround continues

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"Profits at Tesco have soared as the UK's biggest supermarket continues to turn its business around.

The group reported pre-tax profits of £1.3bn for the year to 24 February - up from £145m for the previous year as UK sales rose 2.2%.

The news follows years of poor results due to a long period of over-expansion and an accounting scandal fine.

Nevertheless, Tesco said market conditions remained challenging because of continued cost price inflation.

Commenting on the results, Tesco boss Dave Lewis said: "This has been another year of strong progress, with the ninth consecutive quarter of growth.

"More people are choosing to shop at Tesco and our brand is stronger, as customers recognise improvements in both quality and value.

He said the company was "firmly on track to deliver" its medium-term ambitions.

Tough competition

Tesco's performance has gradually improved since 2014, when it reported the worst results in its history with a record statutory pre-tax loss of £6.4bn.

It has faced an intensely competitive retail environment in which German discounters Aldi and Lidl have stolen market share from the bigger supermarkets. It was also hit with a £250m penalty last year for overstating its profits in 2014.

Tesco said that it added 260,000 more shoppers in 2017 and that sales of fresh food, its own-brand products and clothing had performed well.

The group also announced its first end-of-year dividend since 2014, giving shareholders a total payout of 3p a share for 2017.

Mr Lewis also said the group was on track to deliver at least £200m of annual cost savings after sealing its takeover of wholesaler Booker last month.

Booker Group is the UK's largest cash-and-carry operator, supplying everything from baked beans to teabags to 700,000 convenience stores, grocers, pubs and restaurants.

Bryan Roberts, global insight director at TCC Global, told BBC Radio 4's Today Programme that Tesco was "back on track".

"Suppliers, colleagues and shoppers are all back on side assumingly, and sales and profits are both growing very strongly, and of course the Booker deal has been completed and they can grow on that too.

"Perhaps what the future will hold will be the store in Cambridgeshire, which also has a small Booker cash-and-carry in it."

He said Tesco was also likely to start selling its own white labelled goods through Booker convenience store chains such as Londis and Budgens.

Challenging conditions

The fall in the pound since the Brexit vote has increased the cost of imported food, driving up input costs for retailers and prices for consumers.

Despite this, Tesco managed to increase its margins significantly during 2017.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said inflationary pressures were starting to ease, but food retailers faced other challenges.

"Competition in the grocery market is still fierce, with the discounters Aldi and Lidl piling on the pressure, alongside the likes of Morrison and Sainsbury," he said.

"It's also hard not to glance at the periphery of the market, and see Amazon limbering up with the purchase of Whole Foods and online grocery trials in selected UK postcodes.""

Source – BBC News

About the author

Philip Scott

Head of Equities, Director

Philip has worked as a Private Client Stockbroker for nearly 20 years, commencing his career in Operations with Rensburg Sheppards (now part of Investec plc) before spending 9 years with Killik & Co advising on and directly managing portfolios. He joined SI Capital in 2006 to head up the Private Client Advisory desk.

Philip is a regular contributor to local media commenting on stock market dynamics and is a Chartered Member of the Chartered Institute for Securities & Investment (MCSI). His RDR qualification gained special recognitionfrom the CISI for achieving the highest combined pass mark in the country for the Investment Advice Diploma in 2012.

“At SI Capital I enjoy being part of a talented team who collectively share the same desire to provide excellence in service.  My focus is to ensure that each client receives effective and optimal management of their assets.”

Philip lives locally, is married with 2 daughters and is an avid sports fan (if now predominantly from the sidelines).  His other interests include music and film.

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