April 10 (Bloomberg) Ã Tesco, the UK's largest supermarket chain, indicated its second-half profi...
April 10 (Bloomberg) Ã Tesco, the UK's largest supermarket chain, indicated its second-half profit rose 17% after adding more televisions and electronics at British outlets and opening more superstores abroad.
Net income rose to £466m, or 6.69p a share, in the six months to February 28 from £400m, or 5.85p, a year earlier, Bloomberg calculations show.
Tesco said it will create 20,000 jobs, half in Britain, as it seeks to balance sales of food and general merchandise at home while expanding internationally. The growing range of goods and financial services helped Tesco's full-year sales grow 4.8% at UK stores open at least a year, beating a 2.3% gain at J Sainsbury, Britain's second biggest supermarket chain.
"They're very, very strong in the UK, but it's not their great future," said John Hatherly, head of global analysis at M&G Investment Management. "Their great future lies in Asia and Eastern Europe."
The company raised the full-year dividend to 4.98p a share from 4.48p a year earlier. Second-half profit was calculated by Bloomberg by subtracting first-half from full-year net income, which rose to £767m, or 11.31p a share, from £674m, or 10.18p, a year earlier. The full-year growth was in line with analysts' expectations.
Tesco trades at 20 times estimated earnings for this year compared with 21 times earnings at Sainsbury and an average ratio of 18 among UK food retailers.
With British interest rates falling, other industries might attract more investor interest than supermarkets, said Kate Calvert, an HSBC analyst who has a "reduce" rating on the stock.
"Tesco will not be immune from this, since it is still basically a UK food retailer," she said.
Finance Director Andrew Higginson credited last year's growth to both the international expansion and the domestic push to add more non-food items in supermarkets. The stores added more jeans, electronics and cosmetics at profitability levels "comparable" to food, he said in an interview.
Last year, the company sold £45m worth of DVD players and televisions, its first year of significant electronics sales. Tesco Personal Finance, the financial services operations, moved from a loss to a profit.
Tesco.com, the company's online sales division, lost £9m on sales of £237m. Overseas, stores in countries such as Hungary and Thailand also turned profitable for the first time, Higginson said.
The company has 68 hypermarkets overseas, and expects to have 130 by February 2003. About 18 are slated to open this year in Europe, for a total of 36.
In Asia, the company plans to add 17 outlets to the 32 operating in the region now. In Britain, Tesco plans to add 30 outlets to the 691 store it had at yearend.
The emphasis is shifting to the British market this year, with half of the 20,000 jobs to be added this year targeted for the UK, compared with 8,000 of 20,000 positions created in fiscal 2000. At the end of February, the company had 240,000 employees worldwide.
"They have a careful management that are rightly flagging some issues today that they didn't have six months ago," said
Clive Black, an analyst with ING Barings who has a "buy" rating on Tesco, said: "Sainsbury is a much more robust competitor than they were six months ago, as is Safeway."
The company said 45% of retail space will be overseas when the planned 130 new hypermarkets are up and running.
That should amount to about 25% of total sales, said Ian Macdougall, an analyst with Williams de Broe with a "buy" rating on Tesco shares.
International business accounted for an eighth of last year's total sales, which rose 12% to £22.8bn. In Asia, sales rose 85% to £919m and sales from Europe excluding Britain rose 29% to £2bn.
Profit from stores abroad is still lagging the UK, where operating profit gained 11% to £1.1bn last year. In the rest of Europe, operating profit rose 37% to £70m. In Asia, the company had an operating profit of £4m compared with a £1m loss the year before.
"It's the first UK retailer to really claim to have built a profitable business outside the UK and it's very impressive," said Richard Perks, senior retail analyst at Retail Intelligence consulting firm. "It puts Tesco in a whole new league."
David Altaner in the London newsroom
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