Clarke promises revamp of Tesco's 'stale' clothing range in UK market

Clarke, who succeeded Sir Terry Leahy at the helm of Britain's biggest retailer a month ago, also unveiled ambitious targets for return on capital by 2014-15, driven by increased sales, profit margins and capital efficiency.

The blueprint came as Tesco unveiled a 12.3 per cent rise in underlying annual pre-tax profits to 3.8 billion on an 8 per cent jump in sales to 67.6bn.

However, the market was disturbed by the revelation that while UK profits rose 3.8 per cent to 2.5bn in the year to end-February, like-for-like sales fell 0.7 per cent in the final quarter.

Clarke admitted: "We didn't achieve our planned (UK] growth in the year and this was only partly attributable to the deterioration in the consumer environment. Our performance in the UK has been below par."

He added: "The non-food market softened in November. Our clothing was not quite right, our general merchandise, electricals and home goods were a bit samey."

He promised greater innovation and marketing edge going forward. Laurie McIlwee, Tesco's finance director, said UK consumers were struggling with higher taxes, pressures on earnings and benefits, and soaring energy costs, with the typical family "about 20 worse off a week".

It was a better picture overseas for the supermarket giant. Asian profits leapt 29.5 per cent to 570m, led by the group's second biggest market, South Korea. Profits in Europe rose 11.2 per cent to 527m, with robust growth in Poland and the Czech Republic.

Clarke said a key objective was for Tesco to "become outstanding internationally, not just successful. It's time to take the next step up". The company said it was budgeting for 12 per cent growth in its international floorspace this year, including a 26 per cent expansion in the US, where it owns the Fresh & Easy (F&E) chain, 14 per cent in Asia and 9 per cent in Europe.

Losses jumped 12.7 per cent at F&E to 186m, worse than the guidance the company gave at the beginning of the year. Clarke said this was due to the costs of integrating Tesco's acquisition of two food suppliers to F&E.

However, he still felt the forecast of breakeven for the business by financial year 2012/2013 was "realistic".

Clarke said Tesco's return on capital employed rose to 12.9 per cent from 12.1 per cent a year earlier, and the new target was 14.6 per cent by 2014-15. The total dividend rises 10.8 per cent to 14.46p compared with 13.05p last time, courtesy of a 10.09p final payment.

Meanwhile, profits at Edinburgh-based Tesco Bank lifted 5.6 per cent to 264m, with Clarke saying that migration of customers from the former Royal Bank of Scotland platform when the bank was a joint venture would be complete in the next few months.

He forecast Tesco Bank would be able to offer mortgages by the autumn "at the latest".