Tesco returns to profit as recovery takes hold

The supermarket chain has posted a £162m pre-tax profit for the year ending 27 February, a dramatic swing from the £6.4bn loss it posted in 2015 on the back of heavy property write downs, reports The Telegraph.

Tesco also reported its first quarter of UK sales growth in three years. The supermarket saw a 0.9pc increase in UK like-for-like sales during its fourth quarter, slightly above analyst expectations, compared to a 1.5 per cent fall the previous quarter. Group like-for-like sales were up by 1.6 per cent during the period.

The boost in the last quarter helped total group sales rise marginally to £48.4bn at constant exchange rates. Operating profits, before exceptional items, were also 1.1 per cent higher to £944m.

Dave Lewis, chief executive, said: “Tesco is in a different place to the difficult place we were in 16 months ago.

“We have regained competitiveness in the UK with significantly better service, a simpler range, record levels of availability and lower and more stable prices. Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case.”

However, shares in Tesco fell by 6.5p, or 3.3 per cent, after Mr Lewis said that it was his “aspiration” to meet analyst forecasts of £1.25bn in profits next year.

He cautioned that the supermarket’s “recovery will not be in a straight line as some people might want”.  “We are still in very difficult, deflationary and uncertain market,” he added.

Mr Lewis said that Tesco would invest further in improving its offer for customers and that the turnaround would continue to focus on growing volumes and improving the “experience for Tesco shoppers every day.”

Analysts at Shore Capital said they believed that the supermarket boss “deserves considerable credit for steering this near retail shipwreck to calmer waters, where the group’s ‘engineers’, can and are now making progress”.

Mr Lewis said Tesco had reduced the cost of an average shopping basket from £46.98 in August 2014 to £44.73 last month and that “more customers are buying more things, more often at Tesco”.

Tesco has attempted to launch a fightback against discounters Aldi and Lidl by launching its own range of cheap “Farm Foods”.

But critics claimed the move backfired after it was revealed that the farms did not exist and the names such as Redmere Farms and Willow Farms were entirely fictional.

Mr Lewis, who was responsible for Dove’s “Love Your Body” campaign while at Unilever, said: “I know that anything one does in marketing will always attract discussion and comment, but our customers totally understand it. We’ve been clear that we have been creating brands and the British customer is a lot more savvy than we give them credit for.”

The chief executive has been jettisoning Tesco operations that he no longer considers core to the supermarket’s business.

Earlier this week Tesco fired the starting gun on its next wave of expected asset sales by offloading its stake in Singaporean online business Lazada to China’s Alibaba for £90m.

The company recently hired advisers at Greenhill to explore the sale of its Dobbies Garden Centres business. It is also looking for buyers for its Giraffe restaurant chain, Euphorium bakery business and Harris & Hoole coffee shops, which were bought by Mr Lewis’ ousted predecessor, Phil Clarke, as an attempt to diversify the company into higher growth areas.