Tesco turnaround continues as profit and sales rise

by Harriet Bell October 5, 2017, 0:22
Tesco turnaround continues as profit and sales rise

Alastair Lockhart, insight director at shopper marketing agency Savvy, said Tesco's reintroduction of a dividend is the latest in a series of milestones that confirms not only momentum, but pace in the retailer's recovery.

Group sales were up 3.3 per cent to £25.2bn, while United Kingdom like-for-likes were in line with expectations, rising 2.2 per cent over the first half.

Three former Tesco executives were accused of "cooking the books" to overestimate profits by £250 million, prosecutors said at the start of their trial last month.

"Today's announcement that we are resuming our dividend reflects our confidence that we can build on our strong performance to date".

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Operating profit climbed 71.8 percent from a year ago to 885 million pounds, and adjusted operating profit grew 27.3 percent to 759 million pounds.

On a statutory basis, the supermarket chain's revenues rose 3.7 per cent from £27.3 billion to £28.3 billion, while profit before tax sky rocketed by a whopping 691.5 per cent from £71 million to £562 million.

The group said this would rise to 5.8p per share next year.

'Management's long-term ambition to offer a dividend that is covered two times by earnings per share looks perfectly sensible, even if the prospective 1.7% yield on offer for this year may not be enough to excite income seekers just yet'.

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Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "There's not many things more telling about the health of a company than its ability to pay a dividend, and Tesco's return to the register after a three-year hiatus speaks volumes about the progress the company has made".

He said the secret of Lewis's success has been to work with fewer suppliers and then use the formidable buying power of the country's largest grocer to drive down prices.

While the numbers and story behind Tesco at the moment looks encouraging, our view is that competition is here to stay and will be ramped up by the German discounters making the margin improvement targets more hard to achieve over time. Media reports suggest that the Competition and Markets Authority (CMA) is expected to give its provisional findings by next month and a final decision by December.

The resumption of the dividend is the strongest sign yet that the British high street giant has returned to a stronger footing, after changing shopping habits, the rise of German discounters Aldi and Lidl and a 2014 accounting scandal all combined to hammer the business and its share price.

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