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Tesco shares power higher as retail giant defies gloomy high street trend

Article By: ,  Senior Market Analyst
April 11, 2018 9:54 AM

Shares in UK retail giant Tesco rallied 5.18% to trade at 221.15 Wednesday after the company reported a 28% increase in operating profits. 

Tesco’s full year operating profit was £1.64 billion as sales in the last three months of its financial year proved to be higher than expected. 

For the whole year group sales rose 2.8% to £57.5bn. Sales at the company’s stores in UK and Ireland increased 2.4% in the final quarter, slightly ahead of the expected 2.2%. Tesco’s performance, helped by chief executive Dave Lewis’ back to basics approach, is particularly impressive given that a large number of UK retailers are struggling to keep store sales high. 

According to a report by PricewaterhouseCoopers a total of 1,700 chain shops closed their doors in 2017, more than in any year since 2010. An average of 11 stores a day opened, while 16 a day closed. 

Tesco’s Lewis said that despite “difficult circumstances”, which include a tough UK market and an inquiry by the Serious Fraud Office into accounting problems dating to 2014 the company was “slightly ahead of where we thought we might be at this stage”.  

Two of the main challenges lying ahead will be integrating the grocery wholesaler Booker which Tesco acquired in March for £3.7 billion and adapting to continuing shifts in consumer trends such as switching to online sales, particularly for non-grocery items.  

Looking ahead, the company expects that a synergy benefit from the Booker acquisition will be around £60 million in the first year, growing to a cumulative of £140 million in the second year and reaching a recurring run-rate of £200m per year by the end of the third year.

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