Every little helps with bumper Tesco profits

SUPERMARKET giant Tesco has weighed in with another bumper profits haul, even though downpours cooled its sales growth over the summer.

SUPERMARKET giant Tesco has weighed in with another bumper profits haul, even though downpours cooled its sales growth over the summer.

Like-for-like sales in the UK rose 3.5% in the six months to August 25 – the lowest rate of growth so far this decade – but Tesco still saw profits improve 14% to £1.32bn. That was higher than expected in the City.

Despite the challenges of a rain-hit June and July, chief executive Sir Terry Leahy reported “good sales momentum” and a stronger showing in August, helped by better weather and the supermarket luring in customers with price cuts.

Shares rose almost 4% as analysts said Tesco looked to be on course for a full-year profits performance in excess of £2.75bn.

But Tesco – along with other supermarkets – is also facing a Competition Commission inquiry into the £95bn grocery sector after the Office of Fair Trading (OFT) found evidence to suggest some firms were using large “land banks” to stop rival retailers opening new outlets.

The company – as well as rivals Asda, Sainsbury’s and Morrisons – were also named by the OFT two weeks ago over allegations of price-fixing in the dairy sector, hotly denied by the firms. Friends of the Earth campaigner Vicki Hird said: “Despite the slower growth, Tesco continues to make supersize profits at the expense of suppliers and customers.”

Panmure Gordon analyst Philip Dorgan said: “The numbers were ahead of our expectations and we see plenty of reasons why growth should accelerate. These numbers should also be helpful for the retail sector as a whole.”

Tesco’s UK business, which has more than 1,500 stores, gained from early good weather before the rain set in, while tougher trading comparisons with last year’s World Cup hit sales growth.

The performance over the six months to August 25 is worse than the 3.9% first-half sales growth posted by Tesco in 2000 and 2002.

Tesco’s sales growth across June, July and August fell to just 2.4% although Tesco’s price cutting saw this surge to 5% during August.

Tesco, which has almost a third of the UK grocery market, saw overall domestic sales reach £18.3bn, more than 5% ahead of last year.

The retailing powerhouse also continued its expansion into the non-food sector, where it reported sales growth of 9.9%.

Citigroup analyst James Anstead called the group’s non-food performance “a slowdown, but not as bad as may have been feared”.

Across the group, non-food sales grew 12% to £5.5bn, accounting for around a quarter of Tesco’s £22.6bn group revenues. The company was also buoyed by the launch of the latest Tesco Direct catalogue last month, which now includes around 7,500 items.

Despite start-up costs of £15m during the half, Tesco Direct is expected to bring in revenues of £150m over the full year.

Meanwhile the firm is rolling out 10 more pilot Homeplus stores – which will sell non-food goods only – after a “pleasing” trading performance from the seven trial stores already up and running. Total international sales grew by 23% to £6.4bn, buoyed by another strong performance in Asia.

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