Tesco beats market expectations– FY 2008/09 update

Tesco has announced the financial results for the 53 weeks ended 28 February 2009, saying that group net sales rose by 15.1% to GBP54.3 billion (USD99.6 billion) during the period, while underlying profits before tax rose by 10.0% to GBP3.13 billion (USD5.74 billion), and group profit before tax by 5.5% to GBP2.95 billion (USD5.41 billion). Net profit rose by 1.7% to GBP2.17 billion (USD3.99 billion), but the retailer’s net debt also increased to GBP9.6 billion (USD17.6 billion) – around 20% higher than forecast in September. Commenting on the results, group CEO Terry Leahy said: “At a time when customers everywhere are feeling the economic strain, we are responding to their changing needs in all our markets by lowering prices, introducing more affordable products and offering even sharper promotions. These actions, combined with our core strengths – in selling food and everyday essentials, owning our own property and having a broad business base – are helping us to cope well with the effects of the downturn.”

The better-than-expected results cam despite higher-than-anticipated losses fr om the fledging US operation. However, American contributions were more than offset by business in Asia, as well as the UK home market where comparable retail sales grew by 4% during the year. In the first six week of the current financial year, UK like-for-like sales growth (excluding petrol) was 3.4%, and 4.4% on a VAT-adjusted basis. Meanwhile, international progress has been “robust”, according to Tesco, “given the economic environment”, with sales growth of 21.5% at actual exchange rates, and 11.9% at constant rates, as “sales grew significantly more rapidly in Asia than in Europe, helped by the early success of the Homever acquisition.” Looking at the current financial year, Tesco said that, across the group, “we have made a good start to the new financial year with total sales up by 9.2% in the first six weeks – and 12.0% excluding petrol”.

In the US, Tesco reported hitting choppy water with its Fresh & Easy stores venture, losing GBP142 million (USD261 million) there during the year, up from the GBP100 million (USD184 million) it had forecast previously. The retailer said it expected losses in the current year to be broadly the same as last year, blaming the higher-than-anticipated losses largely on the stronger USD. However, Tesco also admitted that it was forced to adjust its product range at the 115 stores and engage in vigorous promotions. "Given the scale of the economic downturn, particularly in Las Vegas, Phoenix and the Inland Empire region of California, we are also seeing increased demand from customers looking to make stretched household budgets go further - through more affordable products, larger pack sizes and additional range in some categories, such as grocery and frozen food," Tesco said. Despite the difficulties, the retailer said it was planning to open about 60 more US stores this year, matching last year's expansion volume.

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