Tesco earns its stripes with overseas profits

Britain's biggest retailer has posted promising results. In Asia.

by MT Staff
Last Updated: 19 Aug 2013

Here we go: a good news story for a British retailer. In the words of Tesco’s soon-to-depart chief exec Sir Terry Leahy, the supermarket giant was experiencing ‘the tailwinds of recovery’: posting pre-tax profits of £1.6bn for the six months to 28 August, up 12.5% on the same period last year. Sales grew by 8.3% to £32.9bn.

It sounds like just the kind of story the UK retail sector needs right now. Not quite. This latest success was largely down to Tesco’s performance in Asia, where profits rose 30%. Total sales there grew by 7.6% to £5.3bn – that’s just over 15% of group sales. Every little helps, it seems, for the baht as much as the pennies.

Back here, by contrast, sales were sluggish. Sir Terry said the chain had coped well with ‘subdued demand’: back to earth with a bump there, then. Like-for-like sales in the UK, excluding VAT and petrol, were up by a mere 0.3% to £21.9bn in the first half.

But it’s a measure of the success of Leahy’s ambition that the group’s international presence is really doing the business. And when you look at these Asian results it’s no wonder Tesco’s share price tanked in June, when he announced he was hanging up his basket next March.

Elsewhere, however, he still has some unfinished business. Tesco also announced today that it’s looking to ramp up its American expansion, doubling the rate of its current roll out of the Fresh and Easy chain, centred around coastal and northern California. This will take the chain to around 400 stores in the state within two years, and should see the US business turn a profit by 2013.

But while the Asian adventure calls to mind the spirit of good old British empire-building, the US foray remains a case of keeping a stubborn stiff upper lip in the face of adversity. Leahy’s had to revise his initial plan for 10,000 US stores: so far they’re on just 168. And he’s just announced they’re closing 13 of those. The potentially lucrative US still accounts for less than 1% of Tesco revenues.

But we can understand his determination to keep hammering away at the door across the pond – not only would it be the ultimate cap to Leahy’s incredible career, but Tesco has to go somewhere, and it certainly has nowhere left to go here. Not only is the retail climate tough, but thanks to the chain’s own staggering success, it’s hard to see how it can continue to expand here without cannibalising the checkout lines at existing stores.

That’s why Tesco is concentrating on flogging so much other stuff, from discount clothes to toys, phones and banking. If only it could also develop a UK retail resuscitation kit. We’re sure that’d boost sales too.

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