Tesco resumes dividends following 7th consecutive quarter of growth

By Jo Gilbert

Published: 04 October, 2017

Tesco has offered up the firmest confirmation yet of its turnaround since the business was rocked by an infamous accounting scandal three years ago.

The retail giant’s interim figures for 2017/2018 show some sustained recovery for the supermarket, with sales of the last quarter growing 3.3% to £25.2bn – the seventh consecutive quarter of growth.

Positive sales and profit growth come against a backdrop of “challenging” marketing conditions and “inflationary pressure”, the retailer said.

For the six months to 26 August, profits rose sharply to £562m.

This is nearly eight times the £71m reported in the same period last year, when the company was hit by a series of one-off costs.

UK like-for-like sales rose by 2.2% and operating profit in the UK and Ireland also rose 21.1% to £471m.

The figures also signal the end of the three-year hiatus for shareholder dividends.

The last payout was in 2014, after the giant admitted to overstating profits by around £250m.

In the aftermath, profits nosedived and company went on to report the biggest loss in UK retail history.

However, Tesco has since “woken from its slumber, and then some,” said John Ibbotson, director of retail consultancy firm Retail Vision.

“Tesco’s surging profits are a huge achievement and a shot across the bows to the brand’s would-be obituary writers.

“After seven consecutive improvements in sales, Tesco has finally reinstated the shareholder dividend in the clearest sign yet that the rot has been stopped. Dave Lewis has lived up to his ‘Drastic’ nickname and achieved the delicate balancing act of increasing margins while barely raising prices. In the current inflationary environment this is a huge feat and one of the key reasons cash-strapped customers have been returning to the retail giant in large numbers.”

Tesco chief executive Dave Lewis said that resuming the dividend reflects the company’s “confidence that we can build on our strong performance”.

The former Unilever boss, who took over as Tesco’s head honcho in 2014, has made major changes at Tesco, earning him the “drastic” epithet.

These include axing thousands of in-store jobs and selling off 50 stores.

The secret of his success has also been down to working with “fewer suppliers and then us[ing] Tesco’s formidable buying power to drive down their prices,” according to Ibbotson.

“The combination of cheaper supplier costs and a gradual reduction of Tesco’s own operating costs have allowed the brand to increase profits in the face of a weakening market and intense competition.

“It’s back to basics stuff – sticking religiously to delivering a strong food proposition, keeping prices low and improving customer service – but it works,” he added.

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