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The Tesco retail juggernaut today announced record-breaking sales of more than £1bn a week and better than expected annual profits of more than £3bn despite the impact of the global downturn.
The shares rose 16p to 348p as the supermarket chain announced profits of £3.13bn for the 53 weeks to 28 February and Tesco chief executive Sir Terry Leahy said there were signs the recession was "bottoming out".
Analysts described the figures as "resilient" and "solid", and Tesco chairman David Reid said they were an achievement given "the extraordinary environment we find ourselves in".
Tesco confirmed it is to take on the trad*itional banks with an in-store branch network offering mortgages and current accounts. It is also relaunching its Clubcard in an effort to encourage shopper loyalty and move the market away from the tit-for-tat pricing battle between the big supermarkets which has encouraged "promiscuous shopping".
The company's attempt to break into the US with a new chain of convenience stores is performing poorly. It chalked up a much bigger than anticipated loss of £142m. Leahy blamed the problems on the US economy but admitted that the much-heralded Fresh & Easy chain had made mistakes.
In the UK, where the group operates 2,282 stores, trading profit climbed 10.7% over 52 weeks to £2.4bn. Sales topped £41bn.
Leahy said the Express convenience stores produced the best sales growth. Usually the Extra hypermarkets are the top performers but consumers are shopping locally and more often to save cash. "People tend to avoid the Extras except in payday week," Leahy said. "If you don't want to buy non-food, you don't go."
Tesco has been losing market share to resurgent rivals such as Asda and Morrisons, and to hard discounters such as Aldi and Lidl. Last September, in response to the threat posed by Aldi, Tesco launched its own range of "discounter" brands, billing itself as "Britain's biggest discounter".
Leahy admitted the new cheaper ranges had hit like-for-like sales but said it had halted the exodus of customers. The new-look Clubcard will be launched next month with a "substantial" investment and will offer a new range of deals. There are 15 million Clubcard holders in the UK and seven million overseas.
There were signs the worst of the recession might be over, he said. "It all happened so quickly and was so severe, but there are signs of it bottoming out. The housing market is functioning again. Homes are selling ... mortgages are being made available". In the UK stores, he said, a "sustained pick-up in non-food [sales] would be the green shoot", and he pointed out that recent weeks had seen an improvement on last year's non-food trading.
Tesco's international division, which operates 1,614 stores in 14 countries, produced sales of £17.7bn, up 29.3% or 12.4% at constant exchange rates. Growth in mainland Europe was held back by the downturn but Asia accelerated, boosted by the purchase of 36 hypermarkets in Korea last year.
Partly as a result of that deal, Tesco's net debt rose from £6.2bn to £9.7bn. The retailer said it planned to reduce that by cutting planned capital expenditure and property sales.
The US Fresh & Easy chain was excluded from the international results. Its £142m loss was £50m more than signalled and instead of breaking even this year, as Tesco had anticipated, it is now expected to lose another £140m. Leahy would not be drawn on how long it might be in the red.
The plans to open new stores have been scaled back. Instead of operating 400 by the end of this financial year, Fresh & Easy will have only about 175. The stores were in some of the areas worst hit by the US downturn and Leahy – who is in line for a £10m bonus if the US is successful by 2012 – said the economic conditions were "simply too much for a new business to cope with". Ranges are being changed, the amount of frozen food on sale increased and store interiors made more appealing. Leahy said he had "no regrets about the strategy, but regrets about opening in a recession". He added: "Every good thing I have been associated with has been littered with mistakes."
Tesco is also pushing further into the UK personal finance market. Last year it acquired the 50% of its joint venture with Royal Bank of Scotland it did not already own and is making plans to cash in on its brand name by offering current accounts and mortgages in addition to its existing savings products, insurance and credit cards. It has plans for 60 bank branches in its stores within two years and already has 500 staff in its personal finance division.
Leahy said it was a good time to move further into personal finance when consumer opinion of banks was at an all-time low. The grocerIt intends to tap into Clubcard data to target potential banking customers..
- Tesco
- Supermarkets
- Retail industry
- Banks and building societies
- Banking
- US economy
- Recession
- Mortgages
- Property
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