THE UK’s largest supermarket raked in a huge profit rise last year, steered by chief executive Dave Lewis in a monumental turnaround in fortunes.
Tesco booked a 28.8 per cent rise in annual pre-tax profits to £1.67 billion, ahead of forecasts, while revenue grew 11.2% to £63.9bn.
The favourable results were likened to the piloting of a giant tanker, which is difficult to turn round but which can offer reward once on course.
This time three years ago, Mr Lewis was given a £3m bonus for returning Tesco to profit after a£6.4bn loss in 2014.
However, analysts warily point out that the rise comes against a backdrop of uncertainty in the supermarket sector with the rise of discount stores Aldi and Lidl and a significant merger with Sainsbury’s and Asda in limbo.
READ MORE: Tesco reveals bumper profits after turnaround
Laith Khalaf, a senior analyst at Hargreaves Lansdown welcomed the figures with caution, saying: “The good news for Tesco is it’s now in much better shape to deal with the challenges it faces.”
He also said: “Dave Lewis deserves a round of applause for what he’s achieved at Tesco.
“He took over a business that was reeling from the inroads made by Aldi and Lidl into the UK supermarket sector, and one of the first things on his plate was dealing with an accounting blunder.
“Five years down the road and the supermarket’s rebuilt profits and dividends, and gathered consistent sales momentum in its core UK business.”
John Moore, senior investment manager at Brewin Dolphin, said: “These are strong numbers from Tesco. Like a super tanker, it’s hard to turn such large businesses around, but when you do get positive momentum, it tends to last a long time.”
READ MORE: Asda wins second place in battle of big stores
Ian Forrest, investment research analyst at The Share Centre, said that “the performance is really a validation of the strategy adopted four years ago by Dave Lewis”.
Like-for-like sales increased by 2.9% over the 52 weeks to February 23, which included a 1.7% jump at Tesco and 11.1% at wholesaler Booker.
Comparable sales were up 1.9% in the fourth quarter in the UK and Ireland.
Mr Lewis said: “After four years we have met or are about to meet the vast majority of our turnaround goals.”
He added: “I’m very confident that we will complete the journey in 2019/20.
“I’m delighted with the broad-based improvement across the business. We have restored our competitiveness for customers - including through the introduction of ‘Exclusively at Tesco’ - and rebuilt a sustainable base of profitability.
“I’m pleased that we are able to accelerate the recovery in the dividend as a result of our continued capital discipline and strong improvement in cash profitability.”
READ MORE: Glasgow and Edinburgh feel impact of turmoil in retail sector
Tesco Bank reported a 16.6% year on year increase in operating profit before exceptional items to £197m.
The group issued a final dividend of 4.1p, giving a full-year return of 5.77p per share. This compares to 3p last year.
Tesco said its annual profit margin of 3.45% represents “clear progress” and puts it “comfortably in the aspirational range” that Mr Lewis set four years ago.
Mr Lewis said that there was “fatigue” among shoppers over the never-ending Brexit drama at Westminster, but added: “I’m not seeing any change in buying behaviour.”
In addition, supermarkets are battling rising costs and fierce competition in the sector.
While Sainsbury’s and Asda have also agreed to merge, that is on hold as it sits in the hands of the competition watchdog.
As part of his push Mr Lewis has paid £3.7bn to acquire cash-and-carry business Booker and launched Jack’s, a discount chain.
However, January also saw Tesco announce that up to 9,000 jobs are at risk across its head office and stores as part of a cost-cutting drive.
Shares were up 3.8% at 242.7p.
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