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Tesco group sales strong but UK LFLs down 0.5%

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The UK’s biggest retailer Tesco has today announced impressive international sales growth in the first half of its financial year and a rise in underlying profit before tax of 6.2 per cent year-on-year.

Domestic sales were more subdued due to the low levels of consumer spending and UK like-for-like (LFL) trading excluding VAT and petrol actually fell 0.5 per cent in the 26 months ending August 27th 2011, but UK trading profit grew 4.5 per cent compared to the same period last year.

Tesco acknowledged the financial difficulties for families in its core market with a £500 million slashing of in-store prices, the so-called ‘Big Price Drop’, but this discounting will be made easier by a seven basis points rise in trading margin in the UK in H1.

Non-food product lines continue to be a worry for the retail giant with UK LFL sales in general merchandise, clothing & electricals dropping 4.8 per cent over the half compared to a 3.3 per cent decline recorded last year, and substantial changes to product lines is now planned.

A lift of 8.8 per cent in total group sales and a 3.7 per cent increase to £1.8 billion for group trading profit means investors will be buoyed by an underling diluted earnings per share jump of six per cent for the end of the half.

Philip Clarke, Tesco CEO, commented: “I am pleased that excellent growth in Europe and Asia, as well as an encouraging performance in the US, have supported further progress in the first half, despite the challenges of subdued demand in the UK, particularly in non-food categories.”

US operations reported a trading loss of £73 million for the period but this was an improvement of 23.2 per cent compared to 2010, whilst profits and sales in Europe grew 7.1 per cent and 7.8 per cent respectively.

During the half Tesco announced its exit from the Japanese market due to underperformance, but total sales in Asia were up 11.7 per cent and profits improved by 18.9 per cent during the period.

Looking forward Clarke intends to continue to improve its competitiveness in the UK, where it has been losing some of its dominant market share to discounters such as Aldi and Lidl, slow the pace of Tesco Bank’s systems migration, and break even in the US by the 2012/2013 financial period.

“These actions reflect our focus on the immediate objectives I set out for the business last April and I am confident that these, combined with the strategic strength and diversity of the group’s businesses, mean we are well-positioned to make further progress during the second half,” Clarke added.

A vote of confidence for Clarke’s current strategy came last week, when Warren Buffet, regarded by many as the world’s best investor, upped his stake in the supermarket chain from 3.2 per cent to 3.6 per cent.

Published on Wednesday 05 October by Editorial Assistant

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