Tesco Reports Profits Slashed by Half Amid Difficult Year

07 Oct 2015

07 Oct 2015 --- British retail giant Tesco has reported a drop in profits for the first half of 2015, from €1.05bn in the first half of 2014, to €478m in H2 2015. Whilst disappointing for Tesco, analysts say that the drop is not as bad as first predicted.

In a year that has seen an accounting scandal and fierce competition from discount retailers Aldi and Lidl, Tesco appointed Dave Lewis as chief executive in an effort to turn the company’s fortunes back around. Lewis has embarked upon a strategy that he says will affect every part of the business to make it more profitable.

The company reported that Like-for-like sales in the UK and Republic of Ireland declined by (1.3)%, with an improving trajectory in performance from (2.0)% in the fourth quarter last year to (1.5)% in the first quarter and (1.0)% in the second quarter.

Speaking of the changes Lewis has implemented, Tesco said that in the UK, customers are responding well to improvements in our core offer and that it is seeing sustained year-on-year growth in transactions and volume. As a result, despite continued high levels of deflation driven by both price investment and lower commodity prices, like-for-like sales performance in the UK improved again in the second quarter to (1.0)%.

The closure of a total of 53 unprofitable stores in the UK since the start of the year and the reduced level of new store openings led to a contribution from net new space of just 0.5%. After taking into account the like-for-like sales performance, this results in a decline in total UK sales of (0.6)%. The contribution from net new space in the second half is expected to be minimal.

Total international like-for-like sales increased in the half for the first time in nearly three years. Like-for-like sales grew in all European markets as customers responded well to investments in the fresh food offer, with improving sales trends particularly evident in Poland and

. The company delivered positive like-for-like sales growth in Thailand in the second quarter driven by both increased customer numbers and higher volumes, despite high levels of deflation and a difficult consumer environment.

In a statement, Lewis said: “We have delivered an unprecedented level of change in our business over the last twelve months and it is working. The first half results show sustained improvement across a broad range of key indicators.”

“In the UK, we continue to improve all aspects of our offer for customers, resulting in volume growth which is allowing us to create a virtuous circle of investment,” he continued.

Three core areas that Lewis will continue to focus on to rebuild are: regaining competitiveness in core UK business; protecting and strengthening the balance sheet; and rebuilding trust and transparency:

In terms of the outlook, Tesco says that the market remains challenging. It anticipates that in the second half it will continue to benefit from initiatives already undertaken to improve its competitive position and reduce its cost base, leaving full year expectations unchanged.