First fall for Tesco in 18 years

International supermarket giant Tesco has announced its first profit drop in 18 years and does not expect to see improvements in the near future.

The retailer disclosed that in the 26 weeks ending 25 August, statutory profit before tax was down 11.6% to £1.7bn, as was underlying profit before tax (8.5% to £1.8bn). This, it said, could continue into the second half of the year.

Group trading profit declined in the same period by 10.5% to £1.6bn and, in the UK alone, it was down by 12.4% to £1.1bn.

A recent investment of £1bn into the company to improve the shopping experience for customers is on schedule, according to Tesco. Changes included an investment in employing 8,000 more staff; a refreshment of 230 stores; increased us of “personal” Clubcard offers; and the launch of the Everyday value range, which saw the update of over 2,000 core Tesco products.

Tesco chief executive Philip Clarke said: “We continue to act decisively to tackle challenges and seize opportunities across the group. In April, I set out our plans to ‘Build a Better Tesco’ in the UK. We have been hard at work and I am encouraged by our customers’ initial responses to the changes we have made – but there is much more to be done. I am pleased that the team is in place, highly focused and energised, and I want to thank them for everything they have done.

“The external environment continues to present challenges all over the world. While our businesses in
Asia and Europe have continued to do a great job for customers, our financial performance there reflects
the tough economic backdrop and particularly the regulatory changes in South Korea. That we have
gained or held market share in the majority of markets is a testimony to the skill of our teams across
the group.”

Tesco will continue to invest in the UK company to ‘Build a Better Tesco’, even though it said there was a long way to go. This will include a focus on strengthening competitiveness, as well as improving the shopping trip for customers.

Much of the company’s UK business strategy is in keeping with the current economic climate, which it said continued to be very challenging as customers face “real” financial pressures. Tesco also said that it will bear the burden of the higher costs associated with this.

Clarke added: “We have made some important strategic changes, which have fundamentally altered our approach to capital allocation. First, significantly reducing space growth in the UK and focusing on improving the performance of our existing stores – and second, investing in online to enable Tesco to take a leadership
role in the digital revolution: playing our part in shaping the future of retailing.

“It is in serving the changing needs of customers, as Tesco has done over many years, that we will
create more value for shareholders.”

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