Tesco keeps its crown as results beat City forecasts

Simon English
06.10.09

Tesco today asserted its position as the dominant retailer in Britain with another leap in sales and plans for further aggressive expansion.

The supermarket chain was seen to lose a little market share as the recession raged and rivals managed a faster pace of growth, at least in the UK.

Today Tesco unveiled half-year results which beat the forecasts of most City analysts and indicate that it is unlikely to be removed from its perch any time soon.

Sales in the six months to the end of August jumped 8% to £30.4 billion, while trading profits soared 14% to £1.5 billion.

That enabled the company to lift its interim dividend by 9% to 3.89p, a boost to pension funds and other investors.

Chief executive Sir Terry Leahy felt confident enough to call the end of the recession.

“I think we are through the worst,” he said. “Things are getting better and will keep getting better.”

Tesco created 6500 jobs this year so far and will hire many thousands more over the festive season.

“It was a very good perfomance through a recession. It is a British success story and our customers will have a good Christmas,” added Leahy.

In the UK sales rose 2.8% to £20.6 billion. That's a somewhat slower rise than reported of late by Sainsbury's and W Morrison, but Tesco claims that in the last few weeks its growth rate has “converged with the wider industry”.

The company's US arm, Fresh & Easy, has suffered from the prolonged economic downturn in California, Nevada and Arizona. Tesco is cutting its marketing expenditure in America but insists the business will come good before long.

It had trading losses of $259 million (£161.4 million) in the US for 2009 and is expecting roughly the same this year.

As part of its fightback in the UK, Tesco doubled the rewards on offer from its Clubcard loyalty scheme in August. Today it said this had worked.

Charlie Menegatos, senior trader at Accendo Markets, said growth at the supermarket chain seems “relentless” and that investors should buy the shares.

He said: “While some may take the view that Tesco's market dominance could result in legislation to curb the supermarket's relentless growth, we believe that HM Government may well look to Tesco as a possible buyer for Northern Rock.

“Even without this, the strong core performance will contribute to share price growth, and as such any legislation will be little more than a token gesture.”

Tesco shares fell 6.4p to 385p in early trading.

Critics of the company say it is simply too powerful, squashing smaller retailers and creating entire towns that rely on its stores. Tesco says the supermarket industry is highly competitive and that customers have more choices than ever about where to shop.

In Asia, profits rose 21% to £175 million, while they dipped 5% to £191 million in Europe.