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Tesco reports first profits fall in 18 years ‘after running too hot’

By Mike Stones , 03-Oct-2012

Supermarket giant Tesco has reported its first profit fall in 18 years, as its chief executive Philip Clarke said the UK business had been “running too hot”.

“We have been running too hot in the UK. We put 8,000 more staff into existing stores to ensure our products are better cared for and our colleagues have more time to spend with customers,” Clarke told BBC Radio 4’s Today programme.

Adding the extra staff had a full year effect of £200M, he said.

Pre-tax profit for the six months to August 25 was £1.7bn, a fall of 11.6% on the same period of 2011.

Underlying profit before tax fell 8.5% to £1.8bn, while group trading profit was £1.6bn, down by 10.5%, with the UK down by 12.4% to £1.1bn.

‘A lot more for us to do’

But Clarke said: We recorded the first quarter of positive like-for-like growth for seven quarters, That’s pretty good but a lot more for us to do.”

Tesco six-point development plan had only just begun and customers were beginning to notice an improvement, he said.

A key feature in Texco’s £1bn plan to refresh the UK business was the development of online sales. “We are making a big investment into the internet people because people are doing more shopping online than they were previously.”

Clarke said the retailer had opened 90 drive-through dot com stores where shoppers collect their groceries by car and leave the store. “We are investing massively behind that [the internet] with 200,000 items now available online in general merchandising.”

Putting food first

After the previous management’s emphasis on non food grocery ranges, Clarke said Tesco was now putting food first. But the need to make economies in household spending was the new normal, he warned

“We track Tesco families [via Tesco Clubcard data] and they are telling us that they are resigned that this is the new norm. They don't have great expectations that things are going to improve in the short term."

He added: “Hit by fuel prices and taxes, real incomes are not growing and what we see is that they are starting to buy more in our Every Day value range, relaunched in March. Customers are being more savy.”

Clarke announced a £1bn investment programme to improve UK stores in April.

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