Tesco sailing into calmer waters

The supermarket giant reported bottom line pre-tax profits of £162m for the year to February 27 against losses of £6.3bn the previous year, which was the worst in its history and one of the biggest losses in UK corporate history.

The key figure was a 0.9 per cent rise in UK like-for-like sales in its fourth quarter, which marked its first full quarter of growth since 2013.

However, its shares fell 15p to 181p after the firm warned about tough market conditions, saying that the fierce price war with rivals Asda, Morrisons. Aldi and Lidl will put profits under pressure.

Tesco said its investment in price cuts will hamper profit improvement, particularly in the first half of this year.

Chief executive Dave Lewis said the supermarket had been “stabilised” and is no longer in crisis, but he said the group faces a “challenging, deflationary and uncertain market”.

He said Tesco’s recovery will not be a “straight line” and the job to turn around its fortunes is not yet done.

The return to annual profit comes after a grim year when massive property writedowns sent it slumping more than £6bn into the red.

The recent improvement in like-for-like sales after three years of decline follows a bumper Christmas for the group, when it reported a surprise 1.3 per cent jump in sales over the six-week festive season.

“We feel like we stabilised the business. We don’t feel that we’re in the crisis that, being candid, we were 16 months ago,” said Mr Lewis.

“More customers are buying more things more often at Tesco,” he said, highlighting fourth quarter UK volume growth of 3.3 per cent and a 2.8 per cent rise in customer transactions.“

Mr Lewis was parachuted in to take over from former chief executive Philip Clarke in September 2014 at a grim time for the chain, with Tesco uncovering a £326m accounting black hole in autumn 2014 and suffering plunging sales.

Its woes were compounded as trading across the sector was hit by falling food prices and hit by a price war sparked by the increasing might of German discounters Aldi and Lidl.

Under Mr Lewis, Tesco has shut 60 unprofitable stores since the start of its financial year and shelved plans to open a further 49 shops.

He has also cut prices across hundreds of lines, while making a raft of changes such as shutting Tesco’s final salary pension scheme, disposing of its loss-making Blinkbox operation selling online videos, and moving its main headquarters from Cheshunt to Welwyn Garden City in a measure expected to save £250m.

Earlier this week he kicked off the next expected wave of asset sales by offloading an 8.6 per cent stake in Singaporean online business Lazada to China’s e-commerce giant Alibaba for £91m.

Tesco is also reportedly planning to sell off the Dobbies Garden Centres chain, coffee shop Harris & Hoole and restaurant Giraffe to focus on the main supermarket business, but Mr Lewis declined to comment on the speculation.

Shares in Tesco, which controls 28 per cent of Britain’s grocery market, have risen 31 per cent so far this year on recovery hopes. Prior to the update, the consensus forecast for operating profit before one-off items in 2016-17 was £1.25bn.

“If we were to achieve that and make all the investments we want to make, that is a significant achievement,” said Mr Lewis.

Blackfriar: Page 3