Wednesday, 3 October 2012

Tesco Reports First Profit Decline in Almost Two Decades

By Sarah Shannon - Oct 3, 2012 3:20 PM GMT+0800

So-called trading profit, a measure that excludes property gains, fell 11 percent to 1.59 billion pounds ($2.6 billion) in the six months ended Aug. 25, the Cheshunt, England-based retailer said in a statement today. The average estimate of 12 analysts compiled by Bloomberg was 1.62 billion pounds.
Chief Executive Officer Philip Clarke has pledged to invest 1 billion pounds in new products, additional staffing and Tesco’s 2,900 U.K. stores as he seeks to boost a leading market position that fell to a seven-year low earlier this year. Same- store sales rose in the second quarter, snapping a run of six straight quarterly declines.
“The last couple of years have shown us that even the giants can falter when they take their eye off the shopper,” said Bryan Roberts, an analyst at Kantar Retail in London. Still, the second-quarter sales performance “tell us that its underperformance in the U.K. may well have bottomed out.”
Tesco fell as much as 2.1 percent in London trading and was down 1.7 percent at 331 pence as of 8:06 a.m. The shares have fallen 18 percent this year, while those of competitor J Sainsbury Plc have gained 14 percent.

Sainsbury Sales

Sainsbury said today that U.K. same-store sales growth accelerated to 1.9 percent in the second quarter on a basis that excludes gasoline as it stepped up price competition with Tesco.
Tesco’s same-store sales rose 0.1 percent in the most recent quarter, excluding fuel and value-added tax, the first increase since the third quarter of the 2011 financial year.
“The changes are coming through at a pace,'' Clarke said on a conference call. ''Customers are starting to tell us they like what they’re seeing. I wouldn’t be saying we’ve turned the corner, we’re on the road.”
The CEO said the external environment “continues to present challenges all over the world.”
In South Korea, Tesco’s second-largest market after the U.K., profit was hurt by restrictions to store opening hours. Business in European countries including Poland, the Czech Republic and Hungary was affected by the debt crisis and falling consumer sentiment. The retailer gets about a third of sales and earnings from outside of the U.K.
Tesco maintained the first-half dividend at 4.63 pence, the first time this century that it hasn’t raised the payout.

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