Tesco unveils record profits of £3bn

Supermarket giant Tesco bucks financial gloom with biggest profit ever reported by a British retailer

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• Graeme Wearden
• guardian.co.uk, Tuesday 21 April 2009 09.01 BST
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Tesco sales have soared past £1bn a week. Photograph: Martin Godwin

Tesco has defied the economic gloom and beaten City forecasts by posting record profits of more than £3bn in the last financial year.

Total revenue soared to £59.4bn, taking sales to more than £1bn a week for the first time.

Tesco reported today that it made an underlying pre-tax profit of £3.128bn in the 12 months to 28 February, a period in which the economy slid into recession. This is an all-time record for a British retailer, and a 10% increase on the previous year's results.

The chief executive, Sir Terry Leahy, said the supermarket company was coping well with the downturn. "At a time when customers everywhere are feeling the economic strain, we are responding to their changing needs in all our markets by lowering prices, introducing more affordable products and offering even sharper promotions," he said.

But he also warned it was "too early to forecast when an upturn will come", pointing out that Tesco had seen an increase in downtrading in the last six months as consumers tightened their belts.

In the UK, Tesco made a trading profit of almost £2.4bn, up by more than 10%, on sales of £41.5bn. But in the US, Tesco's Fresh & Easy chain made a trading loss of £142m, more than analysts had expected.

Shares in Tesco rose by 5.5%, gaining 18.2p to 350.5p, as the City welcomed the results. Shareholders will receive a total dividend of 11.96p a share for 2008, up from 10.9p in 2007.

Tesco: our record profits are good for Britain

Lucy Neville-Rolfe, Tesco's corporate and legal affairs director, rejected the suggestion that the company should be embarrassed about making such large profits while the UK was suffering its worst recession in decades.

"We are very much putting back the money we're making," she insisted. "Many of our shares are owned by pension funds, so our success is filtering through the economy."

Tesco is planning to create 11,000 jobs this year, and argues that other industries such as construction will also benefit as it opens more stores.

Critics of Tesco have said that the company puts unfair pressure on suppliers, who have themselves suffered from rising raw material costs in the last year. But Neville-Rolfe said that the fall in the value of sterling had encouraged it to order more from British suppliers.

She also said that shoppers spent 30% on locally sourced produce last year, as "people care more about their local community when times are tough".

Freddie George, retail analyst at Seymour Pierce, said he was keeping his buy recommendation on Tesco.

"The company, in our view, is capable of achieving 10% per annum earnings growth over the next three years through further developing its non-food interests, through growing its international activities and through developing its banking subsidiary, which we believe will become a major contributor," he said.

Banking and telecoms are both expected to be significant sources of revenue growth for the company in future years, as it continues to expand its range.

During the last year Tesco launched its new Discount range, in an effort to combat the rise of Aldi and Lidl. This has knocked about 2% off its total sales, but Neville-Rolfe believes that it is keeping customers loyal.

Tesco said it is cutting capital expenditure by £1bn this financial year, to £3.5bn. But Neville-Rolfe said this did not mean that its expansion was slowing, as the downturn meant it could make more sense to lease an existing site rather than build a new one.

She also insisted that Tesco was still committed to Fresh & Easy, even though the US subsidiary would not hit the original target of breaking even this year.

"We opened our first US stores in boom states, some of which are now depopulating because of the sub-prime crisis. But you always have to suck it and see in overseas markets. Once the recession ends we'll have great potential."