Tesco profits tumble 55%

7th October 2015


Tesco has posted a 55% fall in profits as it continues with plans to turn the business around.

Group operating profits for the first half of its financial year were £354m, compared to £779m a year earlier.

Its pre-tax profit was £74m, compared with a loss of £19m for the same period a year ago.

The supermarket said it was on track to deliver £400m annual cost savings from restructuring.

UK like-for-like sales were down 1.1% in the second quarter an improvement from the first quarter’s fall of 1.5%.

International sales were up 1%, but the group warned price deflation was still having a detrimental effect.

Chief executive Dave Lewis told the BBC he was “quietly confident” about Tesco’s turnaround, admitting the group hit a low point at the end of last year.

“We obviously had some issues to deal with, we dealt with them. It meant that in the second half of last year we made no profit whatsoever in the UK.

“So if I compare to the second half of last year, the first half of this year feels like we’ve made some progress.

“Our sales are growing compared to where they were either a year ago, or indeed in the second half of last year. And we’ve generated some profit as we rebuild the profitability of Tesco business. But importantly at the same time, as improving what it is we’re doing for our customers.”

Russ Mould, investment director at AJ Bell, the investment platform, says: “Tesco’s trading figures lived down to the low set of expectations and its market remains very difficult, but the initial share price fall may be doing the company a small disservice, especially as the statement features no further profit warning or nasty surprises.

“Performance in the UK and Republic of Ireland improved a little while International showed marked improvement. Some may be disappointed by the absence of talk of further asset sales but the stronger showing from the overseas businesses does suggest it could be easier to sell them for a better price in the future.”

Graham Spooner, investment research analyst at The Share Centre, explains why the broker has Tesco as a “hold”:

He says: “Tesco results this morning highlighted the problems that the sector as well as the group have had over the past two years. However, the retailer did beat analyst consensus expectations, as operating profits more than halved in what is proving to be a challenging turnaround. Investors should acknowledge that CEO Dave Lewis also stated this morning that Tesco has delivered unprecedented levels of change over the last twelve months.

“The retailer has managed to reduce the rate of falling sales, which is a mild positive for investors. Furthermore, Tesco highlighted that it remains on track to deliver £400 million of annual cost savings. Investors will be aware that, as expected, there was no dividend, but there is a new executive team in place which aims to enhance shareholder value.

“Whilst fierce price competition and promotions are likely to remain a squeeze on margins, we recommend Tesco as a ‘hold’ for the patient investor. The company’s plans to re-focus its attentions on its core UK market are going to take some time and incur costs. For investors interested in the sector, we recommend Sainsbury’s as a ‘buy’.”

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