Tesco's £1bn-a-week sales leads to record profit

Tesco has reported record annual profits of over £3bn - and it's hauling back those upstart discount chains...

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Last Updated: 06 Nov 2012

Tesco said today that it made an underlying pre-tax profit of £3.13bn in the year to February. That’s 10% up on last year, despite this whole pesky recession thing, and a record even by its own lofty standards. The retail behemoth reported group sales of £59.4bn for the year (up 15%), which means that it’s now shifting over £1bn of stuff every single week of the year. And not content with dominating its existing markets, it’s now moving into banking, insurance and telecoms and further expanding overseas. Tesco isn’t having things all its own way in the UK – and certainly not in the US – but the juggernaut clearly rumbles on…

Tesco’s critics have been muttering about its slowing sales growth in the UK – particularly at a time when the rest of the Big Four all been going great guns. But although UK like-for-like sales were ‘only’ up 3%, that’s still a pretty sizeable increase for a business with sales of over £40bn a year. And although Tesco boss Sir Terry Leahy admitted this morning that its rivals are eating into its market share to some extent, it still controls over 30% - while customer switching data obtained by the Times suggests that it’s stopped the exodus to cheapo chains like Aldi and Lidl, courtesy of its ‘Britain’s Biggest Discounter’ drive.

Besides, UK food is only part of the story for Tesco these days. Although non-food suffered last year as customers cut back on discretionary spending, the International division saw sales jump 14%, with Asia doing particularly well (helped by the acquisition of some new stores in Korea). Tesco’s only big disappointment came in the US, where new concept Fresh n’ Easy still hasn’t really caught on with American shoppers: it had hoped to break even, but it turns out the division actually lost £142m. Tesco blamed this on the ‘challenging trading environment’ and the cost of building the necessary infrastructure to support rapid expansion - but given that no British retailer has ever really cracked America successfully, the jury is still very much out on this one.

Still, with the rest of the International division doing so well, Tesco can afford to grin and bear it for the time being. Meanwhile back home in the UK, it has big plans for its Personal Finance division, which it thinks can step into the breach vacated by our disgraced high street banks (and made a healthy operating profit of £244m last year, despite a £134m charge for expected loan losses). And then there's its new mobile phone venture, which it sees as a competitor to Carphone Warehouse. If these take off, Tesco's plan to double in size every decade won’t seem that far-fetched; after all, it was only four years ago that its profits broke the £2bn barrier…

Opponents want to know who pays the price for Tesco’s relentless profit growth – the bigger it gets, the more power it has to squeeze competitors and suppliers. But judging by its 5% share bounce this morning, investors are just counting their blessings...



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