Tesco Domestic Market Helps It Beat Profit Forecast

On Wednesday, the announced 28% increase in profit for the full year at Tesco surpassed expectations helped from a strong end to its year at home, underlying the recovery for the biggest British retailer under CEO Dave Lewis.

Tesco, which has Britain’s largest supermarket chain, is expanding into providing food to restaurants, bars as well as its smaller rivals with a £4 billion or $5.7 billion acquisition of wholesaler Booker. On Wednesday it posted a £1.64 billion operating profit for its year that ended February 24.

That figure is compared to guidance by Tesco of £1.575 billion and the 2016-17 operating profit of £1.28 billion. Following the news, Tesco shares were 3.6% higher in early morning London trading.

Lewis said that Tesco was generating substantial levels of cash while net debt has been lowered by nearly £6 billion over the past three years. He added that all that puts Tesco on track for delivering it ambitions for the medium term.

Lewis arrived at Tesco during 2014 and was tasked with turning a market leader around as it was battling with a drop in sales as well as profit due to shopping habits by consumers changing and the increase in presence of German discount supermarkets Aldi and Lidl.

Just shortly after Lewis arrived an accounting scandal was discovered that plunged the group into its worst-ever crisis in is close to 100-year history.

The CEO’s first task was to stabilize Tesco, which he did, then start its growth again by focusing on having more competitive pricing, new more streamlined product ranges, improved customer service and much more improved relationships with supplier.

The acquisition of Booker is Lewis’ boldest move to date, providing Tesco access to the quickest growing catering segment in Britain’s £200 billion grocery market.

Tesco competes with Asda, Morrisons and Sainsbury, and said it was on track to reach its targets for the medium term, which include slashing cost even more and improving its operating margins to between 3.5% and 4.0% before the end of 2019-20.

Its 2017-18 operating margin was 2.9%.

Same store sales in its domestic market were up over 2.2% for the full year, with that important figure up by 2.3% during fourth quarter.

It appears as if the only weakness in the numbers was Tesco division in Asia where it has operations in Malaysia and Thailand, as sales fell there by 14% during the fourth quarter.

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