UK supermarket chain Tesco has announced rises in turnover and profit for the first half, but chief executive Terry Leahy expressed concern over the effects of rising oil costs.
For the 24 weeks ended 13 August 2005, Tesco’s revenue excluding VAT was £17.237bn (US$31.1bn), compared with £15.143bn in the same period last year. Profit before tax was £908m, compared with £804m.
“By improving the shopping experience for customers in our businesses around the world, we have been able to deliver another good performance in a more challenging year,” said chief executive Terry Leahy. “Looking forward, the accumulating effects of rising oil-related costs, both on consumer confidence and on our business, are a cause for concern, but we remain confident that we will make further progress in the
Sales in the UK were up 11.1% to £14.6bn, with operating profit up 19.2% to £801m.
Total international division sales grew by 25.6% to £4.2bn in the first half (last year £3.4bn) and by 17.3% at constant exchange rates. International contributed £163m to
operating profit, up 23.5% on last year, with operating margins unchanged,
before a £1m integration charge on the Aram Mart acquisition in Korea.
In the rest of Europe division, sales rose by 25.5% to £2.3bn (last year £1.9bn). Operating profit increased by 25.8% atactual rates to £83m (last year £66m).
In Asia, sales grew by 25.6% to £1.9bn (last year £1.5bn). Operating profit increased by 21.2% to £80m at actual rates (last year £66m).
We have continued to make good progress with all four parts of our strategy, Tesco said. The four elements are to maintain a strong UK core business, become an international retailer, be as strong in non-food as food, develop retailing services.
We have done this by keeping our focus on trying to improve what we do for customers in all parts of our business. We aim to make their shopping experience as easy as possible; we constantly seek to reduce our prices to help them spend less; we offer the convenience of either large or small stores and we try to bring simplicity and value to sometimes complicated markets.
Growth in customer numbers is driving our sales, it said. More customers are choosing to shop at Tesco today, with almost three million more weekly customer visits than there were a year ago. Our latest quarterly Clubcard mailing, which marked the tenth anniversary of the scheme, went to one million more people than last year, the biggest increase since 2001. Average spend per visit (excluding Express stores) is also up slightly despite deflation in our stores.
We have invested in lower prices for customers. Our sales deflation of nearly 2% (excluding petrol) confirms that many of our prices are lower than last year.
We have improved customer service by putting more staff into busy stores and, using new technology such as hand-held computers, enabling them to spend more time on the shop floor.
We have rolled out self-service checkouts to 130 stores and over 850,000 customers use them every week. Together with better staff scheduling, this has helped to reduce the time customers spend at the checkout.
We have improved on-shelf availability again. Our measure of this, which is based on our in-store picking of Tesco.com orders, shows that availability has improved consistently over the last six months.
At the same time, customers are recognising that our aisles are clearer as we introduce more shelf-ready packaging to speed replenishment, add parking bays in fixtures to keep refill cages out of the way and reduce the amount of off-shelf product displays.
Tesco re-invests efficiency savings for customers. Our Step-Change programme, which brings together many initiatives to make what we do better, simpler and cheaper, is planned to deliver further savings this year of £330m, on top of almost £270m achieved last year.
Nearly 6,000 products are now delivered to store in shelf-ready packaging. This makes stock replenishment easier, quicker and cheaper.
To ensure that everyone feels welcome at Tesco, we have put a lot of effort into tailoring our offer for local customers. For example, our new Slough Extra features over 800 speciality Asian lines, from new vegetarian and Halal ready meals and extensive ranges of bulk-pack rice, to Bollywood DVD’s. This is currently one of Tesco’s highest turnover stores.
We have also carried out extensive research to understand how best to help customers choose a balanced diet. This has led to the introduction of new nutritional ‘signpost’ labelling to our own brand products to provide simple, clear, front-of-pack information. 2,000 completed labels are planned by the year-end.
We have made further progress with the development of our store formats. During the first half, we opened or extended another four Extra hypermarkets. A further 15 are planned to open by the year-end, bringing the total to 119 and we anticipate being able to open around 20 new Extras a year, mostly through extensions to existing superstores. Our recent Extra extensions – in Bar Hill, near Cambridge and Slough in Berkshire – opened in August, each trading from more than 100,000 square feet sales area, and featuring our widest non-food ranges yet.
More customers have access to our Express convenience stores as we bring the Tesco offer and lower prices to many new neighbourhoods. The T & S to Expressconversion programme is almost at an end with a further 18 stores completed during the first half. 27 brand new Express stores also opened in the first half, bringing the overall total to 589. A further 58 Expresses are planned in the second half.
A total of 630,000 square feet of new sales area was opened during the first half in all formats, of which almost 130,000 square feet was in extensions to existing stores. A further 1.3m square feet is planned to open during the second half, including just over 550,000 square feet from extensions.
We are pleased with the performance of our international businesses, which have had a strong first half. International is now making a significant contribution, not just to sales and profits but also to the group’s growth rate. With good sales growth, growing local scale, increasing store maturity and the benefits of central distribution, returns from our international operations are also continuing to strengthen.
These businesses are well-adapted to the needs of their local customers. They are run by strong local management teams benefiting from Tesco Group expertise in marketing, ranging and buying, store design and layout, format development, supply chain and systems. In almost all countries we are continuing to grow market share as we build our store networks and improve our like-for-like sales.
International like-for-like sales grew by 4.4% in the first half. This improvement was driven by significantly stronger growth in our Central European markets – with particularly pleasing performances in Poland and Slovakia – as well as Korea. Our existing stores in Malaysia and Turkey also traded very well.