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Tesco's new profit fall is not all bad

Wednesday, October 07, 2015 - 01:42

Britain's biggest supermarket Tesco says it is trading ahead of expectations and outperforming rivals after a move to sacrifice profitability in favour of price cuts and better services won back customers. But as Joel Flynn reports, the CEO's turnaround plan is far from complete.

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There aren't many companies where a 55% percent fall in half year profit is not considered a disaster. But then there aren't many firms facing as many problems as Tesco. The world's third largest retailer is in the middle of a turnaround programme at a time or turmoil in the sector. The profits are down because prices have been sacrificed to bring in customers. Jeremy Cook is Chief Economist at World First (SOUNDBITE) (English) WORLD FIRST CHIEF ECONOMIST, JEREMY COOK, SAYING: "If stores have not been profitable here in the UK, then we are going to see further store closures. You also have to remember that the Tesco rent bill, the rent they're paying on stores around the UK, is something around £8 billion a year, so that's a huge, huge amount of money." COULD CUT HERE MAYBE.. to be paying away in rent." Dave Lewis is the man with the plan. He took the helm at Tesco a year ago after leaving Unilever. And shares were up 2 percent after the results. (SOUNDBITE) (English) TESCO CHIEF EXECUTIVE, DAVE LEWIS, SAYING: "The fact that we're recovering from the end of last year while we're still lowering prices for customers, the fact that we have generated cash for the first time, in a long time, the fact that we're delevering the balance sheet by the sale of the Homeplus business in Korea. There's an awful lot of evidence of this business is turning around." Tesco lost its way after two decades of growth. It focussed on overseas expansion instead of responding to the rise of discount grocers at home. In April it reported an annual loss of 6.4 billion pounds, one of the biggest in British corporate history. It's also still feeling the effects of an accounting scandal and there are concerns about its balance sheet. It may have sold its South Korean unit for $6 billion - but no other major disposals are planned. Its junk credit rating looks set to remain for now.

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Tesco's new profit fall is not all bad

Wednesday, October 07, 2015 - 01:42