New Tesco boss sticks with strategy despite profit slide

LONDON (Reuters) - The new boss of Tesco, Britain’s biggest retailer by sales, backed the strategy of his predecessor on Wednesday, despite a drop in first-half core profit as COVID-19 costs and losses at Tesco bank outweighed a surge in sales.

Vehicles are pictured outside a Tesco supermarket in Hatfield, Britain October 6, 2020. REUTERS/Peter Cziborra

Ken Murphy, formerly at healthcare group Walgreens Boots Alliance, succeeded Dave Lewis on Oct. 1.

“I think you can take it that I’m really happy with the strategy and direction of the company, unless you actually see it changing in the stores,” he told reporters.

“My job is to maintain momentum in the business and keep us focused on delivering a brilliant Christmas,” he said.

Murphy said it was too early to talk about longer term strategic opportunities. But he said he had no plans to exit any more overseas markets or sell Tesco Bank, which swung to a first half loss as it braces for a surge in virus-related bad debts.

In his six years at the helm, Lewis put Tesco back on track after an accounting scandal and refocused the group on its home market.

Tesco still faces major challenges, most notably the economic impact of the pandemic and potential disruption when Britain’s Brexit transition period finishes at the end of 2020.

Shares in Tesco, which has a 27% share of Britain’s grocery market, went sideways during Lewis’ tenure and last week the group briefly lost its position as Britain’s most valuable food retailer to online specialist Ocado.

The stock was up 2.2% at 0855 GMT, paring 2020 losses to 14.3% after the group forecast that retail operating profit in the full 2020-21 year would be at least the same level as 2019-20 - a slight upgrade from its June forecast.

Tesco made group operating profit before one-off items of 1.04 billion pounds ($1.34 billion) in the 26 weeks to Aug. 29, down from 1.23 billion pounds in the same period last year. Retail operating profit rose 4.4%.

UK like-for-like sales jumped 7.6% as shoppers continued to eat more at home due to coronavirus-related restrictions on socialising, having been up 8.7% in the first quarter.

However, the cost of coping with the pandemic - including extra staff - amounted to 533 million pounds.

Tesco Bank made a loss of 155 million pounds, driven by a provision for potential bad debts and reduced income. A loss of 175-200 million pounds is still expected for the full year.

The 8.2 billion pound sale of Tesco’s Thailand and Malaysia businesses, agreed in March, is expected to complete in the second half, allowing Tesco to return 5 billion pounds to shareholders via a special dividend.

Tesco also named Tate & Lyle’s Imran Nawaz as its new finance chief. He will succeed Alan Stewart who retires in April.

An interim dividend of 3.2 pence is being paid.

($1 = 0.7756 pounds)

Reporting by James Davey, editing by Paul Sandle and Mark Potter