With improved like-for-like sales, Tesco returns to profit

In its preliminary announcement for the fiscal year, Tesco said that Group sales increased 0.1 percent to 48.4 billion pounds and operating profit of 944 million pounds was up 1.1 percent over the last year. However, at actual exchange rates, sales declined by 1.6 percent including a 1.7 percent foreign exchange translation effect principally due to weakness across our European currencies.

Commenting on the annual trading, Dave Lewis, Chief Executive said, “We have made significant progress against the priorities we set out in October 2014. We have regained competitiveness in the UK with significantly better service, a simpler range, record levels of availability and lower and more stable prices. Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case. We set out to start rebuilding profitability whilst reinvesting in the customer offer, and we have done this.”

Detailed summary of the performance

In the UK and the Republic of Ireland, there was a marked improvement in like-for-like sales performance from 1.3 percent in the first half to 0.1 percent in the second half. Full year UK sales declined by 0.4 percent, reflecting both an improving trajectory in the like-for-like sales performance and a declining contribution from net new store space, due to store closures. UK like-for-like sales, excluding VAT and excluding fuel, fell by 0.6 percent in the year but improved over the course of the year, rising by 0.9 percent in the fourth quarter driven by a strong performance across all store formats and product categories.

Like-for-like sales performance turned positive in the fourth quarter for the first time since 2012. International sales grew by 1.8 percent at constant exchange rates. It achieved positive like-for-like sales growth in both Asia and Europe in the second half. The company delivered market share gains in five of its seven international markets. In Central Europe, the restructure of the management team for Czech Republic, Hungary, Poland and Slovakia is complete and now it will be operated as one single regional team. Diluted earnings per share before exceptional items were 3.41p, down 17.6 percent on last year.

Financial highlights of the fourth quarter

UK like-for-like sales increased 0.9 percent in the fourth quarter, whereas Group like-for-like sales were up 1.6 percent. The company said that with its motto of ‘serving shoppers a little better every day’, it witnessed 5 percent rise in UK customer satisfaction over the course of the year. UK volumes went up 3.3 percent in the fourth quarter and UK transactions were up 2.8 percent. International volumes increased 5.5 percent in the quarter under review.

The company reported positive and improving like-for-like sales growth trends in all regions including UK, ROI, Europe and Asia along with improving sales performance in all formats and categories.

Measures announced to improve profitability

Tesco had announced a number of priorities in October 2014 to improve profitability. During the last year, the company followed certain measures to reach its goals.

To regain competitiveness in core UK business, Tesco maintained investment in service with nine thousand more customer facing roles, improved operational performance and simpler processes driving record levels of availability, reduced prices on thousands of products, generated annual positive volume growth for the first time in five years, supporting efforts to build long-term, mutually-beneficial relationships with suppliers, completed UK management restructure, with a 25 percent reduction in roles in the office and closed 60 unprofitable stores.