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Tesco defies UK retail gloom with surge in profit

Reuters  |  LONDON 

By James Davey

LONDON (Reuters) - Britain's largest supermarket bucked a grim start to the year for the with a 28 percent surge in annual profit, underlining Dave Lewis' recovery strategy of lower prices and streamlined product ranges.

Shares in rose as much as 6.3 percent on Wednesday after it confirmed its medium-term savings and profit targets and said the integration of Booker, purchased for 4 billion pounds ($5.7 billion) last month, was well underway.

The deal will see expand to provide to restaurants, bars and smaller grocers, while some 200 million pounds of annual synergies are targeted within three years.

Tesco's results provided some cheer after Britain's brutal trading conditions plunged Toys R Us UK, group and drinks Conviviality into administration and forced and floor coverings firm to close stores.

remains the largest of Britain's supermarkets by a clear margin, having a market share of 27.6 percent, according to the latest industry figures. It is also the fastest growing of Britain's "big four" along with No. 4

made an operating profit of 1.644 billion pounds in the year to Feb. 24 - versus guidance of "at least" 1.575 billion pounds and 1.28 billion pounds made in 2016-17.

Group sales rose 2.3 percent to 51 billion pounds.

The outcome was helped by a strong end to the year in its home market, with fourth quarter like-for-like sales up 2.3 percent - a ninth straight quarter of growth.

GROWING AGAIN

"With three years under our belt is growing again, recovering profitability and generating significant cash," Lewis told reporters.

"The merger with allows us to build on this trajectory."

Lewis led Tesco's fightback after sales and profits were hammered by changing shopping habits, the rise of German discounters and and a 2014 accounting scandal which plunged the retailer into the worst crisis in its near 100-year history.

Lewis, who joined shortly before the accounting scandal was uncovered, first stabilised Tesco, then got it growing with a focus on more competitive prices, streamlined product ranges, better customer service and much improved supplier relationships.

The purchase is his boldest move yet, providing with access to the faster growing catering segment of Britain's 200 billion pound grocery market.

The group, which competes with Sainsbury's, Walmart's and Morrisons, said it was firmly on track to deliver its medium-term targets which include cost savings of 1.5 billion pounds and earning between 3.5 pence and 4 pence of operating profit for every pound customers spend by 2019-20. It had a margin of 2.9 percent in 2017-18.

Bruno Monteyne, who has an "outperform" rating on the stock, said could now achieve the margin target one year early.

also said it will place an increasing focus on cash generation and "sustainable returns to shareholders", raising the prospect of share buy-backs and special dividends.

The group is paying a final dividend of 2 pence, giving a full-year payout of 3 pence. The interim dividend in October was its first in three years.

Tesco's shares have risen 13 percent over the last year and are close to a three-year high. However, they remain below the 230 pence they were at when Lewis joined in September 2014.

That reflects caution among some investors about the ongoing challenge of the discounters and

"Whilst we take some comfort from what it is we have done, we are very clear that there's more to do," said Lewis.

"It's definitely not job done."

(Editing by and Alexandra Hudson)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, April 11 2018. 15:38 IST
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