Tesco shares fell up to 4% yesterday as a strong contribution from international assets to its first-half earnings suggested the British retailer is not immune to Brexit effects.
However, the company restored its dividend after three years without one, marking a milestone in its comeback from an accounting scandal over which former executives are currently on trial in London.
While Tesco’s first-half pre-exceptional operating profit of £759m (€856m) was up 27% and beat analyst estimates, the overall results for the six months to the end of August were bolstered by international earnings.
Property transactions provided a further boost of £33m. Domestic UK same-store sales rose 2.1% in the second quarter, slowing from the previous three months and falling short of analyst expectations.
Overseas operations in markets like Thailand and Poland are providing a crutch due to the weakness of sterling. Adjusted operating profit rose 40% in Asia and more than tripled in central Europe in the first half.
“Tesco’s overseas operations give them more to work with financially than their rivals who are wholly reliant on the UK,” Bryan Roberts, an analyst at TCC Global, said.
In Ireland, Tesco reported like-for-like sales growth of 1.1% and revenues of €1.23bn for the first half. Unlike the overall group, the Irish division had its best second quarter in seven years with like-for-like sales growth of 2%.
“More customers are shopping with us and when they do they are buying more items per trip. We’ve seen good improvements in our customer, colleague, community and supplier measures reflecting our focus on making Tesco a better place to work and shop,” said Tesco Ireland chief executive Andrew Yaxley.
Recent figures from consumer insights agency Kantar Worldpanel showed the scale of Tesco’s recovery in the Irish market, with it outperforming the broader grocery market for the second consecutive quarter, in terms of till sales.
The data, covering the 12 weeks to September 10, showed Tesco closing the gap in market share to 0.1 of a percentage point (to 22%) behind leading player SuperValu. Tesco group chief Dave Lewis said he is comfortable with a consensus estimate for full-year operating profit of £1.5bn. The company will pay an interim dividend of 1p per share.
“We don’t see any Brexit scenario as posing a risk to our targets. Tesco is no more exposed to the risks than anybody else,” he said.
Additional reporting Bloomberg
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