Britain’s largest supermarket chain Tesco today [Wednesday] reported a 14.1% increase in profits for the full year to 23 February, consolidating its food market share in the UK and raising doubts that sales growth at rival chain Sainsbury is closing the gap between the two retailers.
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Tesco’s pre-tax profits, excluding disposals of fixed assets and goodwill amortisation, rose to £1.20bn (US$1.72bn), and fell slightly short of consensus estimates of £1.22bn. CEO Terry Leahy called the results “outstanding”, as the company put the growth down to a growing proportion of non-food sales and heavy investment in the foreign markets of the Far East and continental Europe.
Profits outstripped turnover during the period, which increased 12% to £15.7bn, and Tesco announced a dividend up 12.4% to 5.6p. Sales at Tesco.com grew 50% to £356m, and the system now operates in four countries.
Q4 sales volumes were found to be the strongest in five years. Full year same store sales growth reached 6.2%, and Leahy said this improved to 6.75% at the end of the Q4 when fuel sales are excluded.
“These results demonstrate the fruits of our strategy that was laid out five years ago and will provide strong future growth,” Leahy said in a statement.
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Deputy chairman David Reid commented that UK growth continued to go apace, with market share increasing to 16.7%, from 16.2%, over the past year.
Leahy added that the anticipated slowdown in the UK food retail industry was not a worry, and neither was the assertion of rival Sainsbury’s shortly after Christmas that it was closing the gap between the competitors.
“There is no sign that we are slowing down, we are increasing our market share,” he told Reuters, adding: “I’m not particularly worried about Sainsbury.”
Sales in the UK were slightly below forecasts however, at £23.7bn, but Reid insisted to Dow Jones: “We continue to invest heavily in the UK. There is no way the UK is a cash cow (to fund international expansion).”
Overseas operations
42% of Tesco’s retail space is now outside the UK, where the firm operates in countries including Thailand, Korea, the Czech Republic and Hungary. International profits grew 61% to £119m and Leahy announced: “This year marks the arrival of Tesco as an international group with market leading positions in five of our nine countries.”
For the year coming, Leahy reiterated the group’s ambitious 1998 targets and said he expects international profits to rise to between £140m and £160m.
Reid added that Tesco is only halfway through its international expansion programme and by the end of next year, the company will control more retailing space outside the UK than within it. That space could in part be generated in China and Japan, which are both seen as potential markets, and Malaysia.
Creation of jobs
The company revealed that £2bn capital expenditure would be invested this year, as the group creates 21,000 new jobs worldwide. This figure includes 9,000 jobs in the UK as the domestic chain grows with the addition of 75 new stores and the improvement of 200 more.
Moving forward, the retailer revealed that it plans to grow non-food sales at double the rate of its food revenue. Tesco currently controls 4% of the non-food market share in the UK, a more profitable arena than groceries, and aims to increase sales of such goods to £6bn by the end of this year.
