Tesco Shares Surge as Operating Profit Grows -- 2nd Update
05 Oktober 2016 - 1:00PM
Dow Jones News
By Saabira Chaudhuri
LONDON-- Tesco PLC shares soared Wednesday as the company's
half-year results offered further signs its turnaround plan is
bearing fruit, while Britain's largest retailer also announced a
cost-cutting plan to improve its margins.
Shares in the retailer were trading 11% higher in recent trading
in London.
After losing market share to discounters Aldi and Lidl and
suffering a reputational blow in the aftermath of an accounting
scandal, Tesco in the two years since Chief Executive Dave Lewis
took the helm has poured money into launching more affordable
products, simplifying its range and improving its customer
service.
It has cut its product range by 23%, lowered regular prices 6%
while eliminating 40% of promotions, and added 12,000 more
customer-facing employees. It has also sold noncore businesses
including its gardening arm, Korean business and coffee-shop stake,
and has slashed back-office jobs.
For the first half, operating profit--stripping out large
one-time charges--was GBP596 million ($770.4 million), compared
with GBP372 million a year earlier. On a statutory basis, Tesco
reported a net loss of GBP91 million, compared with a loss of
GBP365 million a year earlier, when earnings were hit by large
charges.
Revenue, excluding value added taxes, edged up to GBP27.34
billion, from GBP27.23 billion, though the figure came in below the
forecast of analysts polled by Thomson Reuters at GBP27.62
billion.
The retailer also reported an improving trend in like-for-like
sales across all formats, including its biggest stores, which have
suffered in recent years as consumers embraced convenience stores
and online shopping.
Tesco is aiming for an operating margin of between 3.5% and 4%
by fiscal 2020, it said. As part of this, it will cut operating
costs by GBP1.5 billion by improving distribution and simplifying
its store operations. The company will spend GBP1.4 billion a year
in capital expenditure through fiscal 2020 to drive these
changes.
Tesco, which reported an adjusted operating margin of 2.18% for
the first half, said it is on track to report adjusted operating
profit of GBP1.2 billion for the year.
"This is a fantastic set of results for Tesco, delivering on all
aspects of the U.K. recovery and providing solid future margin
guidance," said Bernstein analyst Bruno Monteyne.
Not everyone was as enthused.
"The business is caught in the middle, pressured from better
priced value players below and more aspirational higher quality
players above," said independent retail analyst Richard Hyman.
"Tesco needs to go further in developing a clear personality."
Verdict Retail analyst Zoe Mills described the margin target as
"highly ambitious."
The company reported that the value of its food sales in the
U.K. grew for the first time since 2013 in the second quarter.
Tesco said its U.K. like-for-like sales edged up 0.6% in the
first half. Overall, the company's like-for-like sales rose 1%,
helped by growth in international markets like Thailand. However,
its online sales growth slowed as customers were deterred by the
introduction of a GBP2 charge for click-and-collect orders.
Tesco reported its pension deficit had widened by GBP3.2 billion
to GBP5.9 billion after corporate yields dropped. Chief Financial
Officer Alan Stewart attributed the change to an accounting
mechanism but said "there has been no change in the underlying cash
which we're going to paying to our pension members."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
October 05, 2016 06:45 ET (10:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Tesco (PK) (USOTC:TSCDY)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Tesco (PK) (USOTC:TSCDY)
Historical Stock Chart
Von Jul 2023 bis Jul 2024