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Tesco on track to financial recovery

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(Image source: Press Association)

Tesco has unveiled a drop in profits in its half-year report, but still managed to achieve a third consecutive quarter of sales growth.

The supermarket giant posted a 28.3 per cent dip in bottom-line pre-tax profits to £71 million for the six months to August 26, which has been attributed to one-off costs and the grocery sector’s fierce price war.

However, its fightback against the discounters helped Tesco’s UK like-for-like sales increase by per cent in the second quarter.

In addition, sales volumes and transactions in the UK increased by 2.1 per cent and 1.6 per cent respectively while international like-for-like sales were up 2.6 per cent.

Chief executive Dave Lewis announced plans to cut costs by £1.5 billion in order to help Tesco hit its £1.2 billion full-year annual operating profit target.

"Whilst the market is uncertain, we have made significant progress against the priorities we set out two years ago, stabilising the business and positioning us well for the future," he said.

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Tesco has been selling business divisions not related to its main grocery business – such as garden retailer Dobbies, the cafe Giraffe and the Harris and Hoole coffee shop – in order to stabilise it.

Retail industry analysts have welcomed the signs of recovery from the UK’s biggest supermarket chain, although they acknowledged there was still a long way to go.

 “The slickest thing about Dave Lewis’ approach has been its simplicity: reducing prices to regain competitiveness in the core UK business, rebuilding all-important customer trust and strengthening the balance sheet by selling off non-core operations and stores,” Retail Vision managing director John Ibbotson said.

RELATED: Tesco faces legal threat ahead of half-year results

“To top it all off, Lewis has turned the Tesco tanker around against a backdrop of ruthless competition and broader food price deflation. 

“Yes the turnaround has been slower than some would have liked, but let’s not forget that Tesco’s fall from grace was extreme.”

Ibbotson was referring to the tumultuous past few years for the Big 4 grocer, which recorded a record loss last year and is still recovering from a 2014 accounting scandal.

RELATED: Tesco fraud trio plea not guilty to charges

Three former executives have been charged with fraud in relation to the misstating of the company accounts, which they deny.

As a result, Tesco is now facing a legal threat from a group of investors who allegedly lost £150 million from the 2014 accounting scandal.

In addition, the grocer may need to address its looming £5.9 billion pension deficit.

“For now, Tesco simply has to keep its head down and focus on keeping up the momentum and retaining its market share,” Ibbotson said.

RELATED: Tesco £5 billion pensions deficit puts 350,000 pensions at risk

“Its size will help, as it enables it to keep down prices for longer than its rivals and maintain its margins.”

Retail Remedy partner Phil Dorrell agreed, adding that Lewis had was doing an “excellent job” in leading the company.

“Media mutterings aside, the customer isn't feeling misled, they are feeling well provided for with a product that meets price and quality needs,” he said.

“The side show of the accounting fraud is just that, a side show. Our advice? Concentrate on the growth of the business and delivering value to the shareholders. The skeleton will soon be buried.”

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Published on Wednesday 05 October by Elias Jahshan

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