Tesco first-half profits surge but sales growth stutters

(c) Sky News 2017: <a href="http://news.sky.com/story/tesco-first-half-profits-surge-but-sales-growth-stutters-11066490">Tesco first-half profits surge but sales growth stutters</a>

Tesco (Frankfurt: 852647 - news) boss Dave Lewis hailed "strong progress" as the firm reported a sharp rise in first-half profits to £562m and resumed dividend payments, in the latest sign of its turnaround.

Britain's biggest supermarket said its performance had been helped by holding back the scale of price increases compared to rivals in the face of inflationary pressure in a "challenging" market.

However, interim results for the six months to 26 August showed UK sales growth stuttering, slipping to 2.1% in the second quarter compared to 2.3% in the previous three months.

Shares (Berlin: DI6.BE - news) in the FTSE 100 giant opened 2% higher after the results were announced on Wednesday though they later turned negative, along with rivals Sainsbury (Amsterdam: SJ6.AS - news) 's and Morrisons, closing 3.2% down.

The half-year profit figure for Tesco was nearly eight times the £71m reported in the same period last year, when the company was hit by a series of one-off costs.

But even on the company's preferred headline measure stripping out these items, earnings rose 27%.

The performance was enough for Tesco to announce that it would resume dividends to shareholders for the first time since the 2014/15 financial year, with a 1p pay-out.

Chief (Taiwan OTC: 3345.TWO - news) executive Dave Lewis said the business was "continuing to make strong progress".

He added: "Our offer is more competitive and more customers are shopping at Tesco.

"Today's announcement that we are resuming our dividend reflects our confidence that we can build on our strong performance to date."

Mr Lewis, a former Unilever (NYSE: UL - news) executive, was appointed three years ago after a period in which Tesco suffered sliding sales and profits.

The latest figures are likely to be seen as another milestone as he leads the business to recovery amid fierce competition with rivals, in a market that has been shaken up by the advance of discounters Aldi and Lidl.

At the same time, retailers face a battle to maintain competitive prices at a time when their import costs have been rising sharply following the fall in the pound since last year's Brexit vote.

Tesco said: "Market conditions have been challenging with inflationary pressure being felt throughout the half, but we have worked hard with our supplier partners to minimise price increases for customers.

"Our overall sales inflation in the half was around 1% less than the rest of the market, helping us become even more competitive."

Tesco highlighted the performance of its fresh food ranges, saying it was outperforming the market in that area, and also said it was scaling back short-term price promotions in household and general merchandise categories.

It has also been slashing costs as part of a drive to save £1.5bn.

Mr Lewis acknowledged it had been a "testing time" for staff after the company axed 1,200 head office roles and closed its Cardiff call centre, with the loss of 1,100 jobs.

But he said the head office restructuring was now "behind us" and that the business had increased the number of customer-facing store staff.

The results come as Tesco awaits the findings of an in-depth probe by the Competition and Markets Authority into its planned £3.7bn takeover of wholesale giant Booker.

Laith Khalaf, senior analyst at Hargreaves Lansdown (Frankfurt: DMB.F - news) , said: "There's not many things more telling about the health of company than its ability to pay a dividend, and Tesco's return to the register after a three-year hiatus speaks volumes about the progress the company has made."