Reaction: Tesco unwraps annual profits of £1.7 billion

Tesco said its annual profit margin of 3.45% represents 'clear progress'. Picture: Michael Gillen

The supermarket giant reported a 28.8 per cent rise in annual pre-tax profits to £1.67 billion, while overall revenue grew 11.2 per cent to £63.9bn.

Like-for-like sales increased by 2.9 per cent over the 52 weeks to 23 February, which included a 1.7 per cent jump at Tesco and 11.1 per cent at wholesaler Booker. Comparable sales were up 1.9 per cent in the fourth quarter in the UK and Ireland.

Lewis said: “After four years we have met or are about to meet the vast majority of our turnaround goals. 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.”

The group issued a final dividend of 4.1p, giving a full-year return of 5.77p per share.

Tesco said its annual profit margin of 3.45 per cent represents “clear progress” and puts it “comfortably in the aspirational range” that Lewis set four years ago.

The results come at a difficult time for the retail sector as consumer confidence takes a knock from Brexit worries.

In addition, supermarkets are battling rising costs and fierce competition in the sector as Lidl and Aldi continue their relentless march.

Sainsbury’s and Asda have also agreed to merge, but are awaiting the competition watchdog’s approval.

As part of efforts to position Tesco to meet the challenges of a rapidly changing market, Lewis forked out £3.7bn to acquire cash-and-carry business Booker and launched Jack’s, a discount chain that will supposedly rival the German discounters.

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 major cost-cutting drive.

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.

“Tesco looks like it is in a good position: after a long and in-depth transformation programme it has simplified its business and stock lines; the Booker acquisition is providing scale and boosting working capital; and the balance sheet is generally in a solid place.

“While debt is up, this reflects share buy-back and investment in its estate – the underlying trends are more encouraging.

“Indeed, Tesco’s management is clearly positive about the position of the business, signalling this with a significant hike to the dividend.

“All in all, the company seems to have its energy and focus back and, if this trend continues, then further growth in earnings and dividends – despite the difficult retail environment – are a real possibility.”