Tesco turns up the heat as profits soar 24%

Supermarket chain's growth continues unabated
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The Independent Online

Tesco has pledged to turn up the heat on rivals with the "Wal-Martisation" of its non-food and non-clothing lines as the supermarket group yesterday delivered a set of half-year results that beat most expectations.

Tesco has pledged to turn up the heat on rivals with the "Wal-Martisation" of its non-food and non-clothing lines as the supermarket group yesterday delivered a set of half-year results that beat most expectations.

Andrew Higginson, the company's finance director, said shareholders would soon start to see the impact made by Terry Price, the 22-year Wal-Mart veteran who joined Tesco last year to overhaul its "hard lines", which include consumer electronics and homeware.

"We should start to see the benefits of Terry Price... in everything ranging from pots and pans, household goods, electronic equipment, entertainment and news and magazines. We think he's going to do what John Hoerner [the former boss of Arcadia who joined in 2001] did for clothing," Mr Higginson said.

Clothing sales were in fact one of the star performers for Tesco during the six months to 14 August, its results showed. They soared 39 per cent with analysts estimating clothing to be worth £650m to the company, or 10 per cent of non-food sales.

Tesco's performance could not have been in starker contrast to the woeful trading news being announced by Marks & Spencer. Overall Tesco's group sales were up 12.2 per cent to £16.5bn while pre-tax profits increased 24.4 per cent to £822m. Shareholders were told the company's return on capital was on track to exceed 11 per cent. In January the company said it believed it could improve its return on capital by 2 percentage points over the then-prevailing 10.2 per cent level during the course of the next five years. The company increased its interim dividend by 10.6 per cent to 2.29p, while earnings per share rose 21.5 per cent to 7.22p.

"Ours is a pretty simple approach to retailing," Mr Higginson said. "We try to listen to what customers want and do a better job for them than the competition. That's all it boils down to."

In the UK Tesco intends to open its 100th Extra hypermarket by the end of the year. Domestic sales were up 11.5 per cent to £13.1bn with like-for-like sales up 8.3 per cent. Operating profits rose 13.3 per cent to £707m. "Our core food business has done well and we have taken market share from a range of different people," Mr Higginson said. Rivals such as Safeway and J Sainsbury are thought to have been hit badly by Tesco's continued onslaught.

Although clothing in the UK rose 39 per cent and music and DVD sales rose 26 per cent, the overall figure for non-food sales was a more modest 17 per cent. Larger, more mature, categories such as health and beauty dragged down final sales figures.

Tesco continued to repeat its domestic success overseas. Its operations in Europe and the Far East generated sales of £3.4bn, up 14.9 per cent, while operating profits were 42.9 per cent higher at £140m.

Tesco.com, its online grocery delivery business, saw profits rocket 95 per cent to £15m on sales of £307m. Mr Higginson said he thought it was the only such business in the world that was profitable. "Because we do it out of existing stores, the return on capital is very attractive for us," he said.

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