Tesco profits fall by 11.6%
Tesco has reported a 11.6% fall in pre-tax profits to £1.7 billion in its first half although the supermarket giant saw a return to like-for-like sales growth in the second quarter as it continued to implement its turnaround strategy.
Although UK like-for-like sales dropped 0.7% in the first half, there were tentative signs that the turnaround plan was beginning to work with a 0.1% increase in UK like-for-like sales in the second quarter after a 1.5% decline in Q1. However Tesco chief executive Philip Clarke said it was “far too early” to say that Tesco was back on track although he was “encouraged” by the customer response to the changes implemented through the Building a Better Tesco plan.
In Europe and Asia like-for-like sales fell as the eurozone crisis hit sales in Hungary, Czech Republic and Poland, and shopping hour restrictions affected trade in South Korea.
The group’s loss-making Fresh & Easy stores in the US increased sales by 20.1% to £365 million with like-for-like sales growth of 5.2% in the half year. This followed a second quarter like-for-like sales increase of 6.9% from 3.6% in the first quarter. However Fresh & Easy reported a trading loss of £74 million for the first half.
Clarke said that Tesco was focusing all of its efforts on driving forward the profitability of the group’s existing Fresh & Easy stores and expected to end the year with just over 200 stores, rather than the 230 planned at the start of the year. He added: "This move, together with a number of other measures we have already put in place to reduce costs, will lead to a more significant reduction in losses in the second half."
Tesco refreshed over 230 stores in first half and hired 8,000 extra staff in the UK. It also expanded its meat, bakery and frozen food ranges.
Clarke said: "We continue to act decisively to tackle challenges and seize opportunities across the Group. In April, I set out our plans to 'Build a Better Tesco' in the UK. We have been hard at work and I am encouraged by our customers’ initial responses to the changes we have made – but there is much more to be done.
"The external environment continues to present challenges all over the world. Whilst our businesses in Asia and Europe have continued to do a great job for customers, our financial performance there reflects the tough economic backdrop and particularly the regulatory changes in South Korea. That we have gained or held market share in the majority of markets is a testimony to the skill of our teams across the Group.
"We have made some important strategic changes which have fundamentally altered our approach to capital allocation. First, significantly reducing space growth in the UK and focusing on improving the performance of our existing stores – and second, investing in online to enable Tesco to take a leadership role in the digital revolution: playing our part in shaping the future of retailing.
"It is in serving the changing needs of customers, as Tesco has done over many years, that we will create more value for shareholders."
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