Retailing giant Tesco today reported a drop in pre-tax profits of 11.6 per cent to £1.7 billion for the 26 weeks ended 25 August 2012. Group sales grew 1.4 per cent to £36 billion including petrol, while trading profits fell 12.4 per cent in the UK to £1.1 billion and the international business saw a 17.1 per cent slide to £400 million.
Group CEO Philip Clarke cited difficult trading conditions and the company's recent £1 billion investment in its UK arm as the reasons for the fall off.
Tesco’s domestic business suffered from low consumer confidence and during the first half of the year, like-for-like sales (excluding VAT and petrol) fell 0.7 per cent. The retailer's 'Build A Better Tesco' plan has seen 8,000 new staff added to the payroll, with more than half of the additional employees in the fresh produce departments.
In Europe sales growth was 4.4 per cent at constant rates, affected by the ongoing crisis in the Eurozone and associated austerity measures in many markets in Central Europe. Poland and Ireland delivered particularly strong market share performances.
Tesco’s Asian arm showed a fall in like-for-like sales of 1.4 per cent, with a drop in like-for-like sales (including VAT and excluding petrol) in Korea of 4 per cent due to legislation changes which can restrict opening hours. It is expected that these changes will have an impact of around £100 million on the group’s profit performance during the year. Overall international sales rose 5.5 per cent at constant rates to £11.56 billion.
The supermarket chain's online business grew by 11 per cent in the UK, with the e-retail service now available in Poland and Slovakia.
Clarke said, “The external environment continues to present challenges all over the world. Whilst our businesses in Asia and Europe have continued to do a great job for customers, our financial performance there reflects the tough economic backdrop and particularly the regulatory changes in South Korea." He continued, “We have made some important strategic changes which have fundamentally altered our approach to capital allocation. First, significantly reducing space growth in the UK and focusing on improving the performance of our existing stores – and second, investing in online to enable Tesco to take a leadership role in the digital revolution: playing our part in shaping the future of retailing." (3 Oct)
© 2012 - ESM: European Supermarket
