Tesco shines in home market, beats annual profit forecast

By James Davey

LONDON (Reuters) - Tesco beat expectations with a 28 percent rise in full-year profit on Wednesday, helped by a strong end to the year in its home market, underlining the recovery of Britain's biggest retailer under Chief Executive Dave Lewis.

The supermarket group, which is expanding to provide food to restaurants, bars and smaller rivals with a 4 billion pound ($5.7 billion) purchase of wholesaler Booker, made an operating profit of 1.644 billion pounds in the year to Feb. 24.

That compared to Tesco's guidance of "at least" 1.575 billion pounds and 1.28 billion pounds made in 2016-17.

Shares in Tesco were up 3.6 percent at 0715 GMT.

"We are generating significant levels of cash and net debt is down by almost 6 billion pounds over the last three years," Lewis said. "All of this puts us firmly on track to deliver our medium-term ambitions."

Lewis joined Tesco in 2014, tasked with turning around a market leader which was battling a fall in sales and profits due to changing shopping habits and the rise of German discounters Aldi and Lidl.

An accounting scandal, uncovered shortly after his arrival, then plunged the group into the worst crisis in its near 100-year history.

Lewis first stabilised Tesco, then got it growing again with a focus on more competitive prices, new and streamlined product ranges, better customer service and much improved supplier relationships.

BOLD MOVE

Buying Booker is the boldest move yet by Lewis, providing Tesco 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 Asda and Morrisons, said it was firmly on track to deliver its medium-term targets which include cutting costs further and improving operating margins to between 3.5 percent and 4.0 percent by 2019/20.

It had a margin of 2.9 percent in 2017/18.

Like-for-like sales in its home market were up 2.2 percent for the year, with the key figure up 2.3 percent in the fourth quarter.

"A laser-like focus on the core UK food business continues to deliver impressive gains," said Richard Lim, chief executive of analysis group Retail Economics.

"Deeper price investment, a more focused range and further asset disposals have slowed the loss of market share and boosted further improvements in profitability."

The only weakness appeared to be in its Asia division where it operates in Thailand and Malaysia. Sales there fell by 14 percent in the fourth quarter as it cancelled previous practices of bulk selling and the use of short-term coupons to drive sales.

(Editing by Kate Holton)