Tesco has reported growth in half-year sales but lower pre-tax profits – dented by its efforts to grow market share in the bitter industry price war.
The country’s biggest retailer said UK like-for-like sales rose 0.6% in the first half of its financial year to 26 August.
It charted three consecutive quarters of sales growth under chief executive Dave Lewis, who took over the business in 2014 vowing to arrest a sales slump amid a customer exodus to discounters.
That fight has come at the expense of profits with Tesco revealing a group pre-tax profit of £71m – down 28% on the same period last year.
Mr Lewis said a plan to slash costs by £1.5bn over the next three years to invest in its customer offering would help get profitability back on track.
It said it hoped the move, delivered through improving its distribution network and simplifying store operations, would drive its operating margin higher. It did not say if this plan would include further redundancies on top of its head office shake-up.
Its share price rose 9% in early trading.
Mr Lewis said: “We do believe that, after two years, we are stabilising the business and have seen signs of our competitiveness established in the marketplace.”
But he said it was “just the start” of the group’s recovery and confirmed the food price deflation that has been weighing on the entire sector was unlikely to ease off any time soon.
The chain, like its major rivals, has been forced to cut prices to compete with hard discounters at a time of already weak inflation. It, along withMorrisons, has made some progress in its recovery while Sainsbury’sand Asda have struggled.
Tesco has been concentrating on improving its core UK supermarket offering – not just through price reductions but also the customer experience.
It has also moved to rebuild trust and transparency in the wake of its profits overstatement – with the £326m accounting scandal remaining the subject of a Serious Fraud Office investigation.
Three former executives have appeared in court to deny accusations of fraud in connection with the inquiry.
The results statement showed a £95m hit from restructuring and redundancy costs and that Tesco Bank had taken a £45m provision to cover the cost of legacy issues.
Tesco also reported its pension deficit had ballooned to £5.9bn, up from £2.6bn in February, due to the collapse in bond yields.