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Last Updated: Tuesday, 21 September, 2004, 14:50 GMT 15:50 UK
Tesco sees profits jump to 822m
Front of Tesco store
Tesco's sales of non-food items continues to grow
Supermarket giant Tesco has reported a 24.2% surge in first half profits to 822m ($1.47bn), figures which confirm its High Street dominance.

Sales of DVDs, clothes and stationery helped the retailer, with non-food now accounting for 20% of all sales.

Analysts welcomed the unexpected jump in sales even as some warned that sales growth is unlikely to match these figures in the second half.

Shares in the retailer were up 2.45% at 282 pence in afternoon trade.

Like-for-like UK sales, which strip out the effect of new openings, rose 8.3% in the 24 weeks to 14 August while Tesco's share of the non-food market grew from 6.0% to 6.5%.

UK sales were up 11.5% at 13.1bn and its overseas units, which account for one fifth of its operations, saw sales jump 14.9% to 3.4bn.

Still growing

"Despite deflation in our stores, average customer spend is up 3%, reflecting our success in improving our inclusive offer on all fronts," Tesco said.

It's an extraordinary achievement to go on growing in the UK and expand successfully overseas
Hilary Cook, Barclays Private Clients

Online business grew by 27% while the group's telecoms division has 650,000 subscribers and offers "considerable scope for growth", the company said.

Petrol station sales were up 8.8%, but its margins were lower as Tesco did not pass on the full cost of oil price increases to consumers.

Its personal finance venture with Royal Bank of Scotland now has 4.6 million savings, credit card and insurance accounts, a number that is growing at a rate of 90,000 a month, the group said.

Challenge ahead

Analysts believe further UK interest rate rises could undermine consumer confidence and Tesco is facing increasing competition at the low-price end of the market from the likes of Wal Mart owned Asda and Morrisons.

1 Tesco 28.1%
2 Asda 16.6%
3 Sainsbury's 15.4%
4 Morrisons & Safeway 13.9%
5 Somerfield 5.7%
6 Waitrose 3.2%
7 Iceland 2.0%
8 Others 15.1%

But chief executive Sir Terry Leahy remained upbeat, saying: "We are well-placed to meet the challenges of tougher comparisons during the second half."

Brokerage Merrill Lynch described Tesco's half-year figures as "remarkable" and raised its full year profit forecasts.

But, the brokerage did add that it expects like-for-like sales growth to fall to 5.5% in the second half of the year.

"It's an extraordinary achievement to manage to go on growing in the UK and expand successfully overseas," said Hilary Cook, of stockbrokers Barclays Private Clients.

New stores

Tesco has faced government planning restrictions on the building of new out-of-town stores in the UK but it still intends to open 20 more hypermarkets, mainly by expanding existing sites.

It also expects to have 500 Express convenience store outlets by the end of 2004.

And the company confirmed it would be buying 10 stores in the north of England and the Midlands from Morrisons.

Tesco also has stores overseas in the Republic of Ireland, Hungary, Poland, the Czech Republic, Slovakia, Turkey, Taiwan, Malaysia, South Korea, Thailand, as well as new ventures in Japan and China.

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