Tesco’s annual profits have topped GBP1 billion.

With Tesco’s expansion into non-food items and new markets going well, the annual results have been encouraging. Tesco’s financial year ended before the foot-and-mouth crisis began, so the effects of higher meat costs have not yet kicked in. But strong growth in other sectors means the temporary cost  increase is unlikely to hurt the supermarket much.

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In a record year, Tesco’s profits have exceeded the golden GBP1 billion mark. Pre-tax figures for the year came to GBP1.05 billion, up 13% on the previous year. Sales increased by 12%, reaching GBP22.8 billion over the period.


Unlike Sainsbury’s results, which were announced on Monday, Tesco’s figures do not include the effect of stockpiling at the outset of the foot-and-mouth crisis: its financial year was over before the trouble began. In the next financial quarter, however, there will be an impact, both from temporarily increased sales and higher meat costs.


The group’s strategy of expanding internationally and increasing non-food sales seems to be going well. The UK, which accounts for 87% of group sales, had like-for-like sales growth of 5% while total sales grew 9% to GBP19.9 billion. Tesco has already added 1.5 million square feet of space devoted to non-food offerings and claims to be on track for its target of GBP5 billion non-food sales by the end of 2002.


Its international program is also making significant progress. International sales increased by 43% while international profits rose by nearly a half to GBP74 million. Not all its markets are looking healthy, though: Poland’s high interest rates have hit consumer spending and the economic downturn in South Korea hurt results there. Still, these are likely to be more short-term factors than any major problem.

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The only other British retailer to have exceeded GBP1 billion in profits was Marks & Spencer in 1997. With Tesco’s profit margin being so much lower, it needed nearly three times the amount of sales to reach this figure. This alone suggests that its profits will be easier to sustain. Tesco has been making steady progress and its most recent results are definitely encouraging. While the figures did not hold any major surprises, Tesco’s successful implementation of its expansion strategy and its continuing growth in the UK suggest the company can narrow the lead of its larger Continental rivals.


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