Asia and Europe fuel Tesco profit growth but UK sales are flat

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Tesco Thailand: top performer

Tesco Thailand: top performer

Stores in Asia and Europe drove full-year profit growth at Tesco but UK sales were flat and losses at the Fresh & Easy chain in the US increased.

Group profit before tax rose 11.3% to £3.54bn with trading profits in Asia and Europe both up by 30%.

Overall group sales, including VAT, increased by 8.1% to £67.6bn. Excluding petrol sales and the effect of exchange rate movements, they were up 6.0%.

Tesco said the profit growth in Asia was supported by improving like-for-like sales growth, boosted by new stores and its 2008 acquisition in Korea.

Compared to 2009/10 Tesco said it had seen significantly improved sales growth in the region, except for Japan, where economic and trading conditions remain difficult.

Stores in Thailand and Korea, in particular, performed well.

Tesco said Asian markets offer a long-term growth opportunity and will be a key focus for its future international expansion, in both established markets and China.

In 2011 it is adding 5.1m sq ft of selling space in the region.

In Europe, Tesco said recovering economies and improved competitiveness helped deliver record results.

Tesco said it has invested in lower prices, sharper promotions and its Clubcard loyalty programme; funded by productivity and benefits from pan-European sourcing.

Sales growth varied across the region but all markets saw sharply improved like-for-like sales growth compared with 2009/10, said the supermarket.

Tesco reported it is stepping up the rate of new store openings in Europe with a programme to add a further 2.9m sq ft of selling space across the region in 2011/12.

Eight older hypermarkets converted to the Extra format have recorded strong sales improvements with an average sales uplift of 16%, said Tesco. The refits have driven sales in fresh food categories, health and beauty, clothing and electricals, said Tesco.

In the US, Tesco reported losses at its Fresh & Easy chain increased in the year due to costs integrating two fresh food suppliers, which it has acquired, and exchange rate movements.

Tesco said it expected losses to reduce sharply in the current year as strong growth in like-for-like sales continues and improved store operating ratios start to deliver individual shop-door profitability.

Despite the higher losses in 2010/11, the overall business remains on-track to break-even towards the end of the 2012/13 financial year, Tesco said.

According to Tesco, customer feedback remains excellent and it plans to accelerate the growth in customer numbers, which is driving sales per store towards targets.

Tesco said it plans to accelerate the rate of new store openings to around 50 in the current year and expects to reach break-even with around 300 stores trading, rather than the 400 it originally anticipated.

In the UK, excluding petrol and VAT, like-for-like sales were flat, with an overall reduction of (0.1)% in the second half comprising 0.5% growth in the third quarter and a fall of (0.7)% in the fourth. Combined with a strong contribution in the year of 3.1% from net new space, including 3.5% in the second half, total sales (including petrol and VAT) grew by 5.5% in the year.

In food and drink categories Tesco said it continued to perform ahead of the market but growth in general merchandise was below expectations and would be an area of significant focus for the new UK Board.

Phillip Clarke, chief executive, said: “We have equipped the business for global growth with new management structures and teams – including an experienced UK Board, which is bringing more focus and energy to our largest business. Asia and Europe made excellent progress contributing nearly 70% of our profit growth in the year. The momentum in the USA is building but still has some way to go.”