Tesco reports strong progress in first half

Tesco is on track to deliver £1.2bn operating profit for the full year, it has announced, as it revealed strong progress during the first half of its financial year.

Like–for-like UK sales growth rose 0.6% in the six months to 31 August, with volumes rising 2.1% and transactions up 1.6% over the period. This progress was seen across all store formats, its said, although the rate of online grocery sales growth “moderated, as planned” it said, on the back of changes “to improve sustainability” of its offers. Revenue rose 1.4% to £27.3bn, up 1.4%, and group operating profit rose 38.4% in the first half, although profit before tax was hit by exceptional items (including restructuring and the simplification of its bank business), falling 28.3% to £71m.

However the group reported improvement in key priorities – brand health and reputation, competitiveness in the market and net debt, which was down £0.8bn since the year-end, and highlighted a strong improvement in its relationship with its suppliers, which UK supplier satisfaction up from 50% a year ago to 71%.

Chief executive Dave Lewis said strong progress had been made, and the retailer had reinvested in its customer offer to be more competitive on prices, while boosting availability and service, and rebuilding profitability in a “sustainable way”.

“Prices are more than 6% lower than two years ago, availability and service have never been better and our range is more compelling,” he said.

“Whilst the market is uncertain, we have made significant progress against the priorities we set out two years ago, stabilising the business and positioning us well for the future.

“Today, we are sharing the plans we have in place to become even more competitive for our customers, even simpler for colleagues and an even better partner for our suppliers, whilst creating long-term, sustainable value for our shareholders.”

Last month the retailer boosted its own label wine range with the introduction of more than 20 new lines under its core and premium finest* wine range – which it says has seen “significant” growth over the summer – following the simplification of its own label wine range to remove “complicated” sub-brands. It follows the cutting of around a third of the range a year ago.

Broker Joshua Raymond of XTB.com said the key news was the acceleration of like-for-like sales growth in the second quarter to 0.9% from 0.3% in the first quarter. “After consecutive quarterly sales declines, that’s good to see and total sales volumes also rose,” he said, although he noted that Tesco cut prices by more than 6% to meet the high competition in the sector from budget grocers. “This has also clearly had an impact on margin. That being said, it’s also clearly getting traction, with value of food sales hitting their highest levels since 2013. So in this sense Tesco is finally starting to drive back lost footfall to its stores. Perhaps the recovery is now gaining momentum.”