UK grocer Tesco says 1st half profit up 15 percent, sales up 8 percent

Wednesday, October 6, 2010

UK grocer Tesco’s H1 profit up 15 percent

LONDON — Tesco PLC, the world’s third-largest retailer, said Tuesday that its first-half profit rose by 15 percent as the grocery company benefited from recovering economies, particularly in Asia.

For the six months ending Aug. 28, Tesco reported a net profit of 1.18 billion pounds ($1.87 billion), up from 1.03 billion pounds in the comparable year-ago period.

Group sales were up 8.3 percent to 32.9 billion pounds, boosted in part by higher sales taxes in its home U.K. market. Excluding tax, gross sales were up 7 percent.

Shares in the company were up 1.5 percent at 437 pence as the London stock Exchange opened.

Dave McCarthy, analyst at Evolution Securities, said the headline numbers were impressive but masked some worrying trends.

“Results relied on a lower tax and interest charge to compensate for a weaker underlying performance,” McCarthy said. “Continued U.K. underperformance and increased losses in the U.S. are a concern, although the pick up in Asia and Europe is encouraging.”

Tesco’s gains were led by a 30 percent increase in trading profit in Asia. That compared to a 5.5 percent increase in Britain and 3.1 percent elsewhere in Europe.

Fresh & Easy, Tesco’s fledgling venture in the United States, saw sales rise 47 percent, or 10 percent on a comparable stores basis. Fresh & Easy posted a trading loss of 95 million pounds, and Tesco said the venture is two or three years away from turning a profit.

The company said it plans to “mothball” 13 Fresh & Easy stores — six in Nevada, six in Arizona and one in inland California — where the impact of the economic downturn has been most severe and plans to reopen these stores when housing and employment markets pick up.

Tesco has struggled with the Fresh & Easy line, which it launched three years ago, just as the recession hit. The company said it plans to open 19 new Fresh & Easy stores in the second half of the year in areas where local economies have been hurt less.

“The global economic headwinds of the last two years are being replaced by the tailwinds of recovery in most of our markets and this is helping our International businesses to resume strong sales and profit momentum,” said Chief Executive Terry Leahy.

“Our important Asian markets in particular are emerging strongly from recession and we are now benefiting from the substantial investment we continued to commit to the region during the downturn.”

Leahy is stepping down as CEO in March.

In the latest 13 weeks, Tesco said group sales were up 8.8 percent. The company did not report second quarter earnings figures.

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