In what was his final set of results, last week departing Tesco (LON:TSCO), CEO Sir Terry Leahy unveiled a robust set of results for the 6 month period up to 28th August. Total revenue climbed by more than 7% to almost £30 billion whilst pre tax profits increase by 12.5% to £1.6 billion. Whilst the group’s UK operations battled through tough economic conditions, sales across Asia reflected the rude economic health of the ‘new world’ in which Tesco has a burgeoning foothold. Tesco’s Asian love affair was clear and the group pulled in £5.3 billion in the region, 20% more (or 7.6% on a constant currency basis) than the same period last year thanks mainly to the roll out of new stores. Bright spots of note were Thailand and Korea, where the group’s 2008 acquisition of Homeplus is being vindicated in spades.
Elsewhere, sales at Fresh & Easy in the United States soared by 47% and in Europe, on both revenue and trading profit basis, the region marginally trailed Asia.
Making up two thirds of sales and 72% of group trading profit, the UK remains the main stage for Tesco. UK household budgets remain under pressure as higher petrol prices eat into discretionary expenditure however despite this Tesco still managed to post a trading profit of £1.2 billion, an increase of 5.5% from the corresponding period last year.
Tesco’s rise to dominate UK market-share over recent years has been rapid and profound. The group’s rivals however are beginning to claw back some ground and rather than increasing the group’s market-share, management will no doubt be looking to plug any holes and maintain the status quo. Whilst Tesco has maintained its pre-eminent position the group has experienced a slight fall in UK market share from 30.9% to 30.8%.
Tesco however remains a compelling play and investor sentiment will in our view strengthen as the economic outlook across the West improves. Underpinned by healthy operating cash flows and a robust property backed balance sheet, long term earnings look highly secure.
The company product range covers everything from milk to mobile phones, with mortgages to follow shortly… and it does so across a huge expanse. Sir Terry Leahy will be missed however Philip Clarke has been on the board since 1998 and knows his way around.
With rivals eating up the ground,…
