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Tesco to report jump in profit as key targets loom

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Tesco to report jump in profit as key targets loom
FILE PHOTO: A company logo is pictured outside a Tesco supermarket in Altrincham, Britain, April 16, 2016. REUTERS/Phil Noble/File Photo   -   Copyright  Phil Noble(Reuters)
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LONDON (Reuters) – Tesco, Britain’s biggest retailer, is expected to report on Wednesday a 27 percent jump in full-year profit, putting it firmly on track to meet the medium-term targets Chief Executive Dave Lewis set out in 2016, despite the cloud of Brexit.

The supermarket group, currently celebrating its 100th year, is being rebuilt by Lewis following a 2014 accounting scandal.

Analysts on average expect Tesco to report operating profit before exceptional items of 2.08 billion pounds for its financial year ended Feb. 23, up from 1.64 billion pounds in 2017-18.

The group will also report sales for its fourth quarter. Having reported twelve consecutive quarters of like-for-like growth, a 13th is expected.

Tesco has a leading 27.4 percent share of Britain’s grocery market, according to the latest industry data, and looks set to retain that place after the competition regulator said in February it was minded to block Sainsbury’s 7.3 billion pound takeover of Walmart’s Asda.

Former Unilever executive Lewis has steered a steady recovery after the accounting scandal capped a dramatic downturn in Tesco’s trading.

The 2018-19 results reflect transformed relationships with suppliers, lower prices versus major competitors, simplified and better quality product ranges and improved store standards.

Lewis has also been active in pursuing growth avenues. He has bought wholesaler Booker for nearly 4 billion pounds, formed a global purchasing alliance with France’s Carrefour and launched a new discount format called Jack’s.

Shares in Tesco have risen by nearly a quarter this year.

Bernstein analyst Bruno Monteyne said the results “will focus investors’ minds on the quality of the turnaround, the level of cash generation from the core business and the level of growth from Booker.”

Lewis set out a plan in October 2016 to reduce Tesco’s operating costs by 1.5 billion pounds over three years through efficiencies in its distribution network and stores and from procurement savings.

Tesco needs the savings to help achieve its key group margin target of earning between 3.5 and 4 pence of operating profit for every pound customers spend by the end of its 2019-20 fiscal year. Group operating margin was 2.9 percent in 2017-18.

Shore Capital analyst Clive Black said that given Tesco’s progress the results could shed light on the prospects for a notable share buy-back or special dividends.

(Reporting by James Davey; Editing by Mark Potter)

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