Tesco: hardly a basket case

Turns out Tesco's demise has been greatly exaggerated; it's still making money hand over fist.

Last Updated: 06 Nov 2012

There has been some speculation that Britain’s biggest retailer may finally have put a foot wrong, particularly with its recent foray into the US. However, the nay-sayers should have known better: Tesco revealed today that in the year to February 23, its annual pre-tax profit rose 12% to £2.8bn. Sales were up 11% to £38bn, it’s planning to create another 30,000 jobs, the £3bn share buy-back programme is well under way, and its US sales are apparently ‘growing strongly’. Perhaps all those analysts got their sums wrong?

CEO Sir Terry Leahy, apparently not fazed by the prospect of a Scouse grandmother flattening his house, certainly sounded happy enough: ‘The breadth of the Group and the strength of our business model have enabled Tesco to deliver another year of double-digit sales, profit and earnings per share growth - in challenging market conditions,’ he beamed today (well, insofar as he ever beams).

Of course it hasn’t all been plain sailing for Tesco this year. Although UK sales rose by 7% to a whopping £38bn, ‘unseasonal summer weather’ hit growth in the first half of the year, while slowing demand and stiff competition from ‘recovering competitors’ slowed sales in the second half. Still, that didn’t stop it generating £2bn for the group’s bottom line – some of its rivals would love to have problems like that…

So what about its new US chain, Fresh n’ Easy? In recent weeks analysts have been speculating that the venture was missing its sales targets by as much as 70%, particularly after Tesco said it was going to ‘pause for breath’ in its store opening programme. The retail giant didn’t actually separate out its US results (which let's face it, is never normally a good sign) but said it was ‘very encouraged’ by progress so far, and insisted that sales were ‘ahead of budget’ (and better than other US supermarkets). It apparently plans to open 150 new F'n'E stores this year (to add to the 60 it’s already got), so it can’t be doing that badly.

The other bit of good news was that it’s started the current year strongly, with sales up more than 4% in the first five weeks of its financial year – at a time when many on the high street are feeling the strain. Despite the fact it now has a store in every UK postcode but one (Harrogate is the last bastion of the anti-Tesco brigade) it's planning to open another 11.5m square feet of retail space this year - although mostly overseas, where sales are still growing strongly. And it's even revealed plans to take on iTunes and co with a new digital download service.

In short, Tesco continues to be a money-making machine. Write it off at your peril...

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