Tesco misses first-half profit targets
Ireland proved a strong market for Tesco in the first half of its financial year but poor performances further afield meant the British supermarket company missed profit forecasts.
Tesco reported a 12.8% year-on-year rise in group revenue, to £28.3bn (€32m) for the six months to the end of August. It said a “step up” in the second quarter was driven by its operations in the UK and Ireland.
In Ireland, alone, Tesco said sales for the first half were up over 3% year-on-year. The company is market leader here, with a 22.1% share of the Republic’s grocery sector.
However, weak trading in other markets, particularly Thailand and Poland, took the shine off accelerating sales growth in Tesco’s core markets and dragged the company’s share price down by nearly 9% at one point yesterday.
The company, being rebuilt by chief executive Dave Lewis following a 2014 accounting scandal, unsettled investors as problems in some markets compounded fears that competition in the UK would intensify with the planned merger of its closest rivals Sainsbury and Asda.
Tesco, which stuck to its medium-term targets, reported underlying operating profit of £933m which was up 24.4% on last year but short of the £978m analysts had expected.
Profit fell 29.1% in Asia and by 3.3% in central Europe, partly offsetting combined growth of 47.6% in the UK and Ireland where Tesco has benefited from its acquisition of wholesaler Booker in a £3.7bn deal.
Shares in Tesco were up 12% this year prior to the update, but fell towards their biggest one-day drop in over two years before paring back.
“I don’t think the market had fully factored in the Asian side [of the business] but we’re really encouraged by the UK,” Tesco’s chief financial officer Alan Stewart said.
Analysts said the results showed the company was heading in the right direction with the UK and Ireland, which contribute nearly three quarters of group profit, performing well.
“In Thailand [where Tesco has exited non-profitable cash and carry sales] we’re market leader, it’s still the most profitable part of the group and there’s still significant growth to be had,” Lewis said.
He said the difficulties in Thailand and Poland [where there are restrictions to Sunday trading] did not imperil Tesco’s key margin target for the group to earn 3.5p to 4p of operating profit for every pound customers spend by the end of its 2019-20 financial year.
Additional reporting Reuters
