Tesco returns to profit, after working closely with suppliers

By Michelle Perrett

- Last updated on GMT

Tesco has returned to profit, pledging to continue working closely with its suppliers
Tesco has returned to profit, pledging to continue working closely with its suppliers

Related tags Like-for-like sales Profit Tesco

Tesco is back in the black as pre-tax profits hit £162M, in its full-year results, up from the £6.3M deficit on the previous year, as the nation’s biggest retailer pledged to continue to work “more closely” with suppliers

The preliminary results for the 52 weeks to 27 February, 2016 revealed that overall group sales were up 0.1%.

Tesco said it generated annual positive volume growth for the first time in five years, “supporting efforts to build long-term, mutually-beneficial relationships with suppliers”.

Operating profit for UK and Republic of Ireland hit £505M up from £498M on 2014/15.

Group operating profit hit £944M, up 1.1% on the previous year.

Like-for-like sales growth

The UK saw like-for-like sales growth of 0.9% in the fourth quarter, while group like-for-like sales saw growth hit 1.6%.  

However, sales were mixed across the group as full-year UK sales declined by -0.4%. Tesco said this was an improvement in like-for-like sales performance and included a declining contribution from net new store space. It closed 60 store underperforming stores during the year.

UK like-for-like sales, excluding VAT and excluding fuel, fell by -0.6% over the year.

In the UK and the Republic of Ireland, like-for-like sales performance improved from -1.3% in the first half to -0.1% in the second half.

Tesco said it had focused on its strategy set out in October 2014 to revive its results.

It revealed it had continued to invest in service with 9,000 more customer facing roles; had improved operational performance and introduced simpler processes for driving record levels of availability.

It also reduced prices on thousands of products as well as reviewing its 33 food categories, reducing the number of products by 18%. 

The price of an average weekly shop fell by over 3% in the past year, it said.  

Tesco chief executive Dave Lewis

We have made significant progress against the priorities we set out in October 2014,” ​said Tesco chief executive Dave Lewis.

“Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case.

"We set out to start rebuilding profitability whilst reinvesting in the customer offer, and we have done this. More customers are buying more things more often at Tesco.”

He said that the team were committed to serving shoppers despite the “challenging, deflationary and uncertain market”.

Meanwhile,  Lewis apologised for a second time​ to suppliers in January this year, after the Groceries Code Adjudicator ruled Britain’s biggest retailer had breached the Groceries Supply Code of Practice rules in three key areas.

The adjudicator ruled Tesco had made unilateral deductions from suppliers, taken too long to pay money due to suppliers and, in some cases, intentionally delayed payment.


What the analyst said

City analyst Shore Capital said that Tesco ceo Dave Lewis had steered the company back on the road to recovery.

In a document commenting on the results the analyst said that Tesco had reported material steps forward on a road to recovery.

“We believe that Dave Lewis, the group’s likeable ceo, deserves considerable credit for steering this near retail shipwreck to calmer waters, where the group’s ​ engineers, can and are now making progress,”​ Shore Capital said.

It described the results as “more straightforward”​ than the complex results for the 2014/2015 financial year and said it saw Tesco shares as “much more robust as an investment”​.  

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