Tesco’s turnaround continues as half-year profits surge 27.3% despite inflation

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Tesco half year

Tesco has praised its efforts to keep prices low despite Brexit-fuelled inflation after it recorded a surge in profits and continuing growth in sales in its half-year report.

The grocery giant said operating profit before exceptional items soared 27.3 per cent year-on-year from £596 million to £759 million at actual exchange rates, while sales rose 3.3 per cent to £25.2 billion — making it its seventh consecutive quarter of rising sales.

In its UK and Ireland markets, operating profit before exceptional items  jumped 21.1 per cent year-on-year to £471 million compared to the same first-half period last year.

The retailer’s  UK like-for-like sales in the second quarter also experienced a 2.1 per cent uptick, although this was a slight slowdown on the 2.3 per cent recorded in the previous three months.

On a statutory basis, the supermarket chain’s revenues rose 3.7 per cent from £27.3 billion to £28.3 billion, while profit before tax sky rocketed by a whopping 691.5 per cent from £71 million to £562 million.

Tesco’s overall operating margin also up to 2.7 per cent from 2.2 per cent in the same period last year, and the company said it was on track to hit a 3.5 to four per cent ambition in its 2019/20 fiscal year.

Chief executive  Dave Lewis said the company was now “more competitive and more customers are shopping at Tesco” as it sought to keep prices low despite the threat of inflation and continuing economic uncertainty since the Brexit referendum.

The grocer said its inflation was around one per cent less than that across the rest of the supermarket sector as it worked with suppliers to protect customers from inflationary pressures.

“We are continuing to make strong progress. Sales are up, profits are up, cash generation continues to strengthen and net debt levels are less than half what they were when we started our turnaround three years ago,” Lewis said.

Lewis also confirmed that Tesco would resume paying a dividend for the first time in three years, at 1p  a share interim payout.

The last time this happened was in the 2014-15 financial year, weeks before Tesco became embroiled in an accounting scandal that saw it overstate profits by £326 million.

“Today’s announcement that we are resuming our dividend reflects our confidence that we can build on our strong performance to date and in doing so, create long-term, sustainable value for all of our stakeholders,” Lewis said.

The results come as Tesco awaits the findings of an investigation from the Competition Markets Authority into its proposed £3.7 billion takeover of wholesaler and convenience retailer Booker, with provisional results due later this month and a final decision in December.

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