In Depth

How Tesco turned its profits around

Three years after suffering record £6.4bn loss, UK’s biggest supermarket is defying the high-street gloom

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Tesco today reported soaring profits, just three years after it unveiled the worst results in its history.

In April 2015, the supermarket group - Britain’s biggest retailer - reported a record statutory pre-tax loss of £6.4bn for the year to the end of February. Today, pre-tax profits stand at £1.3bn, up 28% on the previous 12 months, reports the BBC.

“The group also announced its first final dividend for four years, giving shareholders a total payout of 3p a share for 2017,” says the broadcaster.

So how did Tesco get back on track?

In 2014, the supermarket giant was losing customers to discount retailers such as Aldi and Lidl, just as its costs had become “unsustainably high”, says the Financial Times. On top of that, Tesco also revealed supplier account irregularities. But the chain appears to have put such troubles behind it, says the newspaper.

Chief executive Dave Lewis has led a huge restructuring of the business, selling off overseas units, reexamining prices and axing thousands of management roles, as well as completing a £4bn takeover of food wholesaler Booker.

Richard Lim, chief executive at Retail Economics, told City A.M. that the Booker tie-up means Tesco is now well placed to take on its budget supermarket rivals “head-on”.

Tesco has also reaped the rewards of shoppers “trading down to own-brand labels, which deliver more sustained profitability”, Lim said.

He added: “A laser-like focus on the core UK food business continues to deliver impressive gains. Deeper price investment, a more focused range and further asset disposals have slowed the loss of market share and boosted further improvements in profitability.”

Today’s profits announcement comes in spite of a downturn in UK consumer spending that has forced some high-street shops and restaurants to close outlets.

“Grocers such as Tesco have been largely unaffected by the gloom, while their trading has been boosted by food price inflation,” says the FT.

Lewis said the chain is now “firmly on track” to deliver its “medium-term ambitions and create long-term value for every stakeholder in Tesco”.

He added: “This has been another year of strong progress, with the ninth consecutive quarter of growth. More people are choosing to shop at Tesco and our brand is stronger, as customers recognise improvements in both quality and value.”

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