Tesco’s sharp rise of £1.3bn profit

Tesco’s share price closed 7 per cent higher after it said it had attracted 260, 000 more new customers over the past year and expected to reap £2.5bn in additional revenues “over the medium term” from its recent £3.7bn takeover of Booker, a food wholesaler.

Dave Lewis, CEO yesterday, said after annual profits exceeded £1bn for the first time since 2014 when the former Unilever executive was hired to address the flagging sales. Under his leadership, the store sales in its core UK business rose 2.2 per cent driven by food which was 2.9  per cent higher.

Mr Lewis’s strategy was to simplify Tesco’s operations by selling far-flung business and properties, doubling down on fresh food and own-label products and cutting costs. It made £820m of savings from a £1.5bn target that has seen the loss 6,000 managerial roles.

Charles Wilson, Booker’s former CEO, seen as Mr Lewis’s heir apparent when Mr Lewis step down within the next year,  has joined the Tesco board as head of its UK business.

Tesco’s pre-tax profits of £1.3bn were roughly eight times higher than the previous year’s £145m, although that had been dragged down by exceptional charges related to Tesco’s 2.14 accounting scandal. However, this year’s earnings were uplifted by £193m of exceptional gains on property and investment disposals and without these Tesco’s operational profits were 26 per cent higher than last year. Tesco trading has been boosted by food price inflation.

Tesco chose to ramp up its advertising spend last year after measures of the brand’s public perception improved considerably, as they increased investment across traditional media including TV, Radio, Print, outdoor and cinema.