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Strong finish for Tesco’s Leahy

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LONDON — Departing chief executive officer Terry Leahy is leaving Tesco PLC on a high note, as the company reports a 15.3% increase in net profit for the first half of fiscal 2010.

Departing chief executive officer Terry Leahy is leaving Tesco PLC on a high note, as the company reports a 15.3% increase in net profit for the first half of fiscal 2010.

“Tesco has made a solid start to the new financial year: investing in the shopping trip for customers, driving strong productivity gains, growing space and winning market share,” Leahy said. “The long-term global recovery is well under way, although the pace and strength of economic recovery varies across markets. We’re in good shape and well positioned to deliver further growth as the economic environment continues to improve.”

Tesco posted a net profit of £1.19 billion ($1.9 billion) for the 26 weeks that ended August 28. Group sales including value-added tax rose 8.3% to £32.91 billion ($52.73 billion).

In the second quarter the United Kingdom-based food retailer saw improvements in all of its operating regions. Total international sales increased by 16.8% at actual exchange rates (10.9% at constant exchange rates), with same-store sales up 4.1%.

Sales for the quarter were up 27.7% in Asia (12.4% at constant exchange rates), helped by particularly strong performances in Korea and Thailand. In Europe (outside the United Kingdom) Tesco’s sales grew by 5.8% (8.6% at constant exchange rates). Same-store sales growth was 5% in Asia and 3.1% in Europe.

“The global economic headwinds of the last two years are being replaced by the tailwinds of recovery in most of our markets, and this is helping our international businesses to resume strong sales and profit momentum,” Leahy said. “Our important Asian markets in particular are emerging strongly from recession, and we are now benefiting from the substantial investment we continued to commit to the region during the downturn.”

Second quarter sales in Tesco’s home market of the U.K., meanwhile, increasing 5.3% (including gasoline) and same-store sales rose 2.4%.

“In the U.K. we have coped well with subdued demand and modest levels of industry like-for-like growth, helped by excellent productivity, a pleasing performance from new stores and good growth from our services businesses, particularly online and Tesco Bank,” Leahy said. “Economic recovery in the U.K. is slow and steady, and I believe our investment in making the shopping trip even better for customers means that Tesco is well placed to grow in this environment.”

Leahy noted that Tesco, having weathered the challenging economic conditions of the recession, is now well positioned to resume a faster pace of growth as the global economic recovery strengthens. The company’s strategy has five elements: be an international retailer, maintain a strong business in the U.K., be as strong in non-food as in food, develop retailing services and engage with the communities it serves.

On the international front, Tesco is stepping up expansion, with plans to open 6.9 million square feet of new retail space in the current fiscal year, up from 4.8 million square feet last year.

Tesco reports that its business in Europe improved sharply in the first half, helped in part by recovering economies. All markets except Ireland saw an improving same-store sales trend in the first half, the company says, and the business in Ireland has turned around and Tesco has returned to growth and market share increases there.

Tesco is also stepping up its expansion in Europe, with plans to add 2.9 million square feet of new retail space in the region during this fiscal year, with most of that growth coming in the second half.

In addition to adding new space, Tesco is remodeling and converting some of its older hypermarkets in the region to its Extra format, and says that effort has been well received by customers. Four such remodeled stores — one each in Slovakia, Hungary, Poland and the Czech Republic — recorded double-digit sales gains, despite the fact that consumer demand in the region continues to be weak. The revamped stores are delivering strong sales increases in fresh food, health and beauty, clothing, and electricals, the company said.

Tesco also reported strong growth in its online business, with sales increasing 16.1% to £1.2 billion. Online profits were flat at £58 million as growth in grocery profits was offset by modest losses at Tesco Direct.

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