British retailer Tesco Plc posted an 18.7 per cent rise in first-half company profits today, confirming its dominance of a stagnant market even as high oil prices forced it to adopt a cautious outlook.
Pre-tax profits for the 24 weeks to August 13, reported for the first time under IFRS accounting norms, came in at £908 stg, beating an average forecast of £886 million.
The group which employs 11,800 people in ninety stores across Ireland, saw sales increase 14.1 percent to 18.8 billion pounds, a figure that also beat the market consensus forecast of 17.09 billion pounds. In the UK, same-store sales were up 8.2 percent, or 6.7 percent excluding fuel.
"It's a very satisfying performance. The slowdown in the macroeconomic environment...and high oil prices don't seem to have affected Tesco in H1. But we'll have to see about H2," said Nicolas Champ, analyst at Oddo Securities.
Price deflation in the UK, excluding fuel, was 2 percent, reflecting a fierce price war with rivals Asda and J Sainsbury - a war Tesco appears to be winning as it makes steady gains in market share.
But Chief Executive Terry Leahy sounded a characteristically cautious note about the second half and said he would not be upgrading the group's budgeting target of 3 to 4 percent UK same-store sales growth for the time being.
"The accumulating effects of rising oil-related costs, both on consumer confidence and on our business, are a cause for concern, but we remain confident that we will make further progress in the second half," Leahy said.
Tesco said it had seen significant external cost increases in the UK, mainly from higher oil-related costs and increased business rates. Current oil prices suggested actual costs could be as much as 60 million pounds above budget for the year.
"I don't think they're immune (to the slowdown in consumer I've seen the (press) reports but I haven't paid a lot of attention to them, to be honest," Leahy said, adding that the 25.6 percent growth in international sales - translating to 17.3 percent growth at constant currencies - was enough for the expansive group to be getting on with.
"International margins have been making progress - we've really sharpened our price position, we've taken on the discounters and made good headway with market share," he said.
While sales outside Britain - mostly in central and eastern Europe and Asia - account for a growing proportion of the total, about 80 percent of revenue is still generated at home.
Tesco has reaped the benefits of adding a host of non-food ranges like clothing, home entertainment, mobile telephony and even contact lenses to its traditional food and grocery lines.
Home entertainment sales grew by 17 percent in the first half, with consumer electronics notching up a 20 percent increase and health and beauty up 11 percent as Tesco sharpens its competitive challenge to non-food specialists like HMV and Boots.
In the second-quarter, UK like-for-like sales were up 7.6 percent, or up 6.6 percent excluding petrol.
Shares in Tesco, which have performed in line with the food retailers' index, closed at 326-1/2 pence on Monday, valuing the company at 24.37 billion pounds.