Tesco announces higher H1 profits and Dave Lewis resignation

Date : 02 October 2019

Tesco has announced H1 results, with group sales rising by 0.1%, or by 0.4% at constant exchange rates. Like-for-like (LFL) sales fell by 0.4% at a group level. As part of the announcement, Tesco also said that its group chief executive, Dave Lewis, was to step down and would leave the business in summer 2020.

Headline results

  • Group sales: +0.1% to £28.3 bn (+0.4% at constant exchange rates)
  • UK & Ireland LFL sales +0.1%, (Q1 +0.8%, Q2 -0.6%)
  • Tesco UK LFL -0.3% (Q1 +0.4%, Q2 -1.0%)
  • Booker LFL sales +2.4% (Q1 +3.1%, Q2 +1.9%)
  • Central Europe LFL -3.1%
  • Asia LFL -1.3%
  • Group operating profit pre-exceptionals +25.4% to £1.4bn (excluding amortisation of acquired intangibles,
  • Group margin 4.41% (+87 bps) incl. Booker. Original target ex Booker target delivered six months early, with 12-month margin of 3.73%

Dave Lewis resignation announced

In a surprise development, Tesco has announced that Dave Lewis has decided to stand down as Group CEO from summer 2020 and will be succeeded by Ken Murphy.

Dave Lewis is widely credited for doing an outstanding job in rebuilding Tesco since he took over in 2014, restoring trust in the business with customers, colleagues and suppliers alike. His decision has been a personal one and comes at a time when Tesco has achieved the metrics he set out when he joined the business.

Ken Murphy will join from Walgreens Boots Alliance where he rose to become chief commercial officer and president of global brands, having gained deep commercial, marketing and brand experience within retail and wholesale businesses.

Flat sales but profits advance in subdued the UK & Ireland market

In the UK and Ireland sales were held back by a challenging Q2 comparative from last year's exceptionally warm weather, the World Cup and Royal wedding and a drag from the closure of Tesco Direct in July 2018.

That said, Tesco outperformed the market in volume terms, supported by further investments in range price and loyalty as part of its centenary celebrations. The 'Exclusively at Tesco' range, now 417 products strong, was a highlight resulting in volume switching from competitors.

Online sales growth accelerated to 7.4% (from 2.5% in the previous six months) following improvements to picking and fulfilment efficiency, and strong growth in click and collect orders following a cut in the minimum order size to £25.

In Ireland sales grew by 0.5%, lifted by strong sales in core fresh food as well as a positive customer response to the 'you won't pay more value' campaign and the opening of the new Liffey Valley Extra.

Booker to be boosted by Best Food acquisition

Booker's sales growth was modest compared to last year as the business annualised against contract wins. With small business confidence remaining low, Tesco supported retail and catering customers with increased promotional activity. To boost growth, Tesco has today announced the acquisition of the assets and operations of Best Food Logistics, adding a further £1.1 bn of additional foodservice sales.

Transformation at pace in Central Europe

Sales fell in Central Europe, driven lower by continuing difficulties in Poland where Tesco is remodelling its business. In Poland, Tesco is moving to a two-format model: compact hypermarkets and supermarkets with a tighter range, lower operating costs and reduced overheads. Excluding Poland sales fell by 2.7% in H1 driven principally by store closures and reduced general merchandise sales.

Change of focus in Asia

In Asia, lower LFL sales reflect a downturn in general merchandise sales. Tesco is focusing on differentiating its customer proposition across large and small stores in Thailand. A new urban supermarket format has been well received by customers. Tesco also plans to roll out an enhanced offer to all Express stores.

 

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