Tesco sales driven by strong food growth

Tesco has announced sales growth and profit recovery in its preliminary results for 2016/17, its first UK like-for-like sales rise since 2009/2010.

Group sales excluding VAT and fuel rose 4.3% in actual terms to £49.9bn in the 52 weeks to 25 February 2017 compared to £47.9bn in the comparable 2015/16 period. Meanwhile, group operating profit stood at £1.28bn, up 29.9% from £985m on the previous period, while operating profit before exceptional items in the UK and Republic of Ireland (ROI) stood at £803m, up 60%.

Its UK like-for-like sales were up 0.9% but declined by 0.1% in ROI, which it attributed to continued investment in lowering prices. Diluted EPS before exceptional items stood at 6.75p, up from 4.05p in the previous period, with cash generated from retail operations at £2.3bn.

Among the strategic drivers driving its actions in the year, said the retailer, brand health was at its strongest level in five years (YouGov BrandIndex February 2017), with a further improvement in its core offer, including a c£300m investment in seven exclusive fresh food brands in March 2016, contributing to a sustained market outperformance in fresh food.

In addition, it claimed the price of a typical food basket was down 6% since September 2014, with promotional participation down to 32%.

Tesco noted that cost savings of £226m had already been achieved towards a £1.5bn medium-term target and it had a more efficient mix across channels and products, with an improved service model in 1,500 stores.

“Today our prices our lower, our range is simpler and our service and availability have never been better,” said chief executive Dave Lewis. “Our exclusive fresh food brands have strengthened our value proposition and our food quality perception is at its highest level for five years. At the same time, we have increased profits, generated more cash and significantly reduced debt.”

He added that the group was confident it could build on this “strong performance” in the year ahead and that its merger with Booker would “bring together two complementary businesses, driving additional value for shareholders by realising substantial synergies and enabling us to access the faster-growing ‘out of home’ food market”.

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