Tesco profit beats estimates

Tesco Plc, the UK's biggest supermarket company, said annual profit rose 12 percent, beating analysts' estimates, as higher revenue in Asia and eastern Europe offset slowing UK sales of clothes and appliances.

Net income climbed to 2.1 billion pounds ($4.2 billion), or 26.61 pence a share, in the year ended on Feb 23, from 1.89 billion pounds, or 23.54 pence, a year earlier, Cheshunt, England-based Tesco said yesterday in a statement. Revenue excluding value-added tax rose 11 percent to 47.3 billion pounds.

Sales outside the UK gained 23 percent, excluding currency swings, Tesco said. The retailer has stores in more than 10 countries from Ireland to Japan, and opened its first outlets in the US during the fiscal year. The increase in annual profit was the slowest in eight years as higher mortgage, tax, utility and fuel bills weighs on incomes in the retailer's domestic market.

"The international business enjoyed a remarkable year," Lehman Brothers analyst Matthew Truman said in a note. "Tesco's results are another demonstration of disciplined growth with all parts of the business growing in line or slightly ahead of expectations." Truman rates the shares "overweight".

Tesco rose 3.25 pence, or 0.8 pence, to 391 pence in London trading on Monday. The shares have fallen 18 percent this year, more than the UK benchmark FTSE 100 Index's 9.7 percent drop.

In March, Goldman, Sachs & Co analysts cut their rating on Tesco to "sell" on concern that higher food prices and slowing consumer spending will hurt earnings. Rising dairy and wheat costs have spurred food makers from Premier Foods Plc, the baker of Hovis bread, to Cadbury Schweppes Plc to raise prices.

Earnings this fiscal year have had a "strong start", Tesco said in the statement, with same-store sales rising 4 percent in the UK, excluding fuel, in the first five weeks.

2008 will be a "tougher year" for UK shoppers, Finance Director Andy Higginson said yesterday by phone. "The business and supply chain are designed to cope with that," he said, adding that Tesco cuts costs by "hundreds of million of pounds" a year.

The retailer lowered the price of more than 12,500 products in its British stores in the first three months of 2008, to retain customers. UK consumer confidence fell to the lowest in almost four years in March as higher mortgage, tax, utility and fuel bills weigh on incomes.

In the US, sales at Tesco's Fresh & Easy stores are "ahead of budget", the company said. The retailer is selling more per square foot than rivals in the country.

Agencies

(China Daily 04/16/2008 page16)