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No stopping the Tesco juggernaut
Simon English, Evening Standard3 Oct 2007
Tesco shrugged off wet weather, investigations by regulators and better performance from rivals such as J Sainsbury to push profits up 18% to £1.3 billion in the first half of the year.
With the City looking for signs of a slowdown, the supermarkets juggernaut swept aside pessimism and continued its plans for world domination.
Already the biggest player in the British grocery market with a 30% share, Tesco now intends to take on Wal-Mart in the US. It launches its Fresh & Easy stores on the west coast of America in a few weeks.
Although like-for-like sales grew at just 2.4% in the second quarter - down from 4.7% in the first three months of the year - a storming August means there is little sign of strife at the thirdbiggest retailer in the world. August like-for-likes boomed 5%.
Chief executive Sir Terry Leahy acknowledged there had been a tricky few months in the core UK grocery business due to "unseasonal summer weather and recovering competitors".
Analysts say a rejuvenated Sainsbury's and smarter management from WmMorrison and Asda are now giving Tesco a run for its money after a sluggish few years.
But Tesco is so large it can compensate for any minor difficulties from one part of its business. The internet arm saw sales up 35% as more customers booked deliveries online and the personal finance arm, a joint venture with Royal Bank of Scotland, made profits of £53 million.
Tesco is fending off inquiries by the Competition Commission into the UK supermarket sector, with provisional findings due later this month. Given its market share, this latest investigation seems largely aimed at undermining Tesco.
Sir Terry said: "This is a very competitive industry from which consumers benefit hugely and it is important that the regulatory authorities give due weight to this."
Tesco sales in the six months to 25 August neared £25 billion, up 9% on a year ago. The company says it expects to create 25,000 jobs across the world this year.
The top element of its five-point strategy is to "become an international retailer", and there is further evidence today of its serious intent.
Sales in China, Thailand, Japan and Malaysia are rising despite what Tesco called "challenging economic conditions and political uncertainty".
The assault on America begins in earnest next month - a foray into Wal-Mart's territory that may turn out to be even bolder than expected. Tesco said today it planned to have 50 stores in the US by the end of the financial year, claiming its offer of healthcare, pension and decent pay was luring experienced supermarket staff away from rivals.
Tesco shares moved up 171/4p to 4523/4p today as the City digested the figures. The stock has already added 8% this year - its fifth straight annual advance.
Numis repeated its buy recommendation on the shares, giving a price target of 570p, at which level Tesco would be valued at £45 billion.
Today's numbers beat most analysts' expectations. Lucy MacDonald at RCM said: "Given the rain and higher interest rates, it's quite a good performance."
Reader views (1)
Sorry we have Sainsbury's taste buds, tried Tesco and didn't like it! Years ago we were in Prague, so we popped our noses into the Tesco near our hotel. It was worse than ST. Helens in the late 60s-early 70s! In short it was a total dump. I was not in a position to judge the food part - it functioned as a department store. As a department store it failed badly! The furniture was so cheap and nasty we wouldn't give it away to the Salvation Army! The local Czeck department store, Bila Lebut, was much better and had such a good variety of things I brought home spoons in non standard sizes and wooden coat hangers - can you believe?
- Carlyle Braden, Croydon, UK, 03/10/2007 08:41
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