Tesco defies consumer slowdown

Rare day of good news in the City boosts stocks; Shares in supermarket giant jump by 7%
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The Independent Online

Tesco, the UK's largest supermarket chain, shrugged off the consumer slowdown and gloom dogging the markets to post record profits, as it hit back at critics of its expansion drive into the US, saying sales had outstripped expectations.

Yesterday's strong full year trading statement, which revealed plans to hire a further 30,000 new employees across the group, sent Tesco's share price soaring 4 per cent in early trading and finished the top riser on the FTSE 100.

This came as a welcome boost to retailers just a day after the British Retail Consortium rep-orted the worst domestic retail sales figures for three years as consumers become increasingly concerned over the future and said consumer confidence was at a 15-year low.

Tesco, which dominates the UK grocery market with a 30 per cent share, overcame the difficulties of an unusually wet summer, increased competition and the turbulent conditions in the financial markets to post record pre-tax profits of £2.84bn for the year to 23 February, a rise of almost 12 per cent.

Mike Tattersall, an analyst at UK broker Cazenove, said: "Headline profits have come in ahead of our forecasts at every key operational level. The tone of the statement is very positive both on the reported results and on the outlook." Tesco said yesterday its core UK market had "performed well in challenging market conditions" through increased productivity and a control on expenses as profits increased 7.1 per cent to £2.05bn. Unusually, it also provided a current trading update, saying domestic sales were up 4 per cent since Christmas over the previous year.

James Anstead, an analyst at Citigroup, said the move "should provide reassurance amid the uncertain trading environment".

Sir Terry Leahy, the chief executive of Tesco, said the diversity and strength of the group had enabled it to deliver solid profits last year and into 2008. "We begin the new financial year confidently, with a good start in the UK, excellent progress in our established international markets and promising early performance from our investments in future growth, particularly in the United States, China and Turkey."

The group repeatedly highlighted the growth in its international operations, where profits rose by 24.3 per cent to £701m. Tesco has 1,561 stores in Europe and Asia and plans to grow that by 505 this year. Tesco's chairman, David Reid, added: "The international business is a powerful driver for the group."

Tesco also controversially targeted the US last year with the launch of its first Fresh & Easy store in November. Critics were predicting it would become the latest international retailer to fail in an assault on the US, yet yesterday the group was bullish over the performance of the now 60-strong chain. It shrugged off rumours of widespread underperformance, saying Fresh & Easy had beaten budget expectations. The group did admit that the trading losses were £62m, which would rise this year to £100m before falling as the stores mature.

Sir Terry said: "It is now 167 days since opening our first Fresh & Easy store. So we are only a few weeks into a project that will last a generation. I'm encouraged by what I see. The performance will be much better than we expected." The group hopes to open 150 new stores in the US this year and believes the business will break even in its second full financial year.

Sir Terry also hit back at talk that headcount would be slashed, revealing the plan to hire 30,000 new jobs worldwide, 10,000 of which would be in the UK. He added: "A few jobs will be cut in a few departments. But that is just part of sensible management." Tesco added that it continued to work with the Competition Commission as it waits for the final report from the inquiry into the grocery industry due out next month. Sir Terry fears few reprisals from the inquiry. "We look forward to the publication of their final report."

The group added that it hopes the commission would avoid "costly and burdensome new regulation, which discourages the pace of innovation that has served the industry and consumers so well".