Tesco says recovery plan working after profit collapse

Wed Oct 7, 2015 2:53pm EDT
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By James Davey and Kate Holton

LONDON (Reuters) - Britain's biggest retailer Tesco said it was trading ahead of expectations and outperforming rivals after a move to sacrifice short term profits in favor of investment in lower prices and better service won back customers.

Reporting first half results a week after rival Sainsbury's showed it too was getting to grips with the turmoil in the supermarket sector, Tesco showed a sustained improvement in underlying sales in its key home market, enabling it to reiterate full-year profit guidance.

The cost, however, of rebuilding a business and a brand that was on its knees this time last year was high.

Tesco's first half profit slumped 55 percent to 354 million pounds ($541 million) and CEO Dave Lewis said on Wednesday he would invest more in the second half to further regain competitiveness.

Shares in the group, down 20 percent over the last six months, traded 2.7 percent higher at 1426 GMT.

"Lewis has successfully corrected the direction of travel," said Kantar Retail analyst Bryan Roberts.

After two decades of growth, Tesco dramatically lost its way, distracted by expensive overseas expansion when it should have been responding to the rise of discount grocers Aldi and Lidl at home.

It reported an annual loss of 6.4 billion pounds ($9.8 billion) in April, one of the biggest in British corporate history, and also manipulated its accounts last year, prompting investigation by Britain's Serious Fraud Office.   Continued...

Pedestrians pass a Tesco supermarket in London January 5, 2015.  REUTERS/Luke MacGregor