Tesco posts surge in profits after Booker deal

A Tesco store. Picture: Michael GillenA Tesco store. Picture: Michael Gillen
A Tesco store. Picture: Michael Gillen
Tesco has posted a surge in annual profits as it hailed a year of 'strong progress' after more than two straight years of rising sales and the completion of its £3.7 billion Booker deal.

The UK’s biggest supermarket reported a 28.4% jump in underlying operating profits to £1.64 billion for the year to February 24.

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Tesco notched up like-for-like sales growth of 2.2% in the UK after a 2.3% rise in the final three months - marking its ninth quarter of growth in a row.

Boss Dave Lewis said the group was on track to deliver at least £200 million of annual cost savings after sealing its takeover of wholesaler Booker.

The group also announced its first end of year dividend since 2014, with a final payout of 2p, giving a 3p full-year divi for shareholders.

Mr Lewis said: “This has been another year of strong progress, with the ninth consecutive quarter of growth.

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“I am delighted to have completed our merger with Booker, and we are moving quickly to deliver synergies and access new growth.”

The results also showed that on a bottom line basis, pre-tax profits leapt to £1.3 billion from £145 million after one-off costs weighed on the previous year’s result.

Shares rose nearly 4% after the profit and dividend cheer.

Tesco gave some insight into its plans following the Booker takeover, confirming it has started offering Booker catering supply ranges in its Tesco stores, while also opening a Chef Central store in its Bar Hill outlet in Cambridge.

Mr Lewis refused to comment on reports that the group is looking at launching a discount chain to face off the threat from German players Aldi and Lidl.

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Its full-year results showed general merchandise and non-food sales remained under pressure over the year, falling by 0.4% amid a tough retail market, although shopper demand remained robust for food, with sales up 2.9% as it sought to keep a lid on price rises.

It said: “Market conditions have remained challenging with continued cost price inflation.

“We have worked hard with our supplier partners throughout the year to mitigate price increases wherever possible, and made a significant investment in the first half to further hold back inflation and protect customers.”

Inflation has eased back over the year, down by 0.8% for food ranges according to the group, but it said pressure on prices remains.

“Our job is to minimise that,” Mr Lewis said.

He said UK consumers had been resilient, but added it had been “difficult for a while and those challenges remain”.

There was also a hit from the Beast from the East after the group’s financial year end, which saw some stores close and deliveries affected.

But Mr Lewis said the chain “recovered quickly”, adding there was unlikely to be a material impact on performance.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “Tesco is enjoying a renaissance, and its turnaround plan is literally paying dividends to shareholders.

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“The outlook is now looking more positive for the grocery sector after a pretty challenging year in 2017. The inflationary squeeze looks to be easing on consumer purses, as is the exchange rate pressure on the cost of stocking shelves.”