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Tesco posts record annual profit

Tesco, the world's No.3 retailer, showed its resilience to the economic downturn, posting a 10% rise in underlying annual profit to Ł3.13 billion ($4.6 billion), a record for a British retailer.

The supermarket group, which employs 440,000 people in about 4,000 stores across 14 countries, also said on Tuesday it had made a good start to its 2009-10 year during which it planned to add 26,000 jobs and over 8 million square feet of new space.

However, chief executive Terry Leahy told Reuters it was “impossible really to say” when Tesco's US business would break even, because of the economic downturn.

Tesco had planned for its US Fresh & Easy chain to break even at the end of its 2009-10 fiscal year, but said it now expected the business to make a similar trading loss to the Ł142 million for the year just ended.

Leahy said he was “absolutely” committed to the US chain.

Tesco's sales rose 15.1% to Ł59.4 billion in the 53 weeks ended February 28. Its dividend was raised 9.7% to 11.96 pence.

Analysts' median forecast was for Tesco to make profit before tax and one-off items of Ł3.04 billion, according to a Reuters Estimates poll of 19.

“It looks as if the consumer is stabilizing at least, so you're not seeing the situation worsening,” Leahy said in a telephone interview. “(But) I think it's too early to forecast when an upturn will come.”

Leahy said Tesco was not expecting to reach its medium-term target of growing underlying British sales by 3%-4% this fiscal year because of the recession, but he noted trading in the early weeks of the new year was within that range.

Sales at British stores open at least a year, excluding petrol, rose 3.4% in the first six weeks of the new financial year, up from 2.7% in the fourth quarter.

“Very reassuring, very solid,” said Shore Capital analyst Clive Black, who was particularly encouraged by the improving trend in underlying British sales. “It shows that, in difficult times, management is on top of the operation.”

Tesco shares have matched the DJ Stoxx European Retail Index over the past year but trade at a discount as a multiple of forecast earnings to rivals such as J Sainsbury and Morrison on concerns it is losing British market share.

Sainsbury posted a 6.2% rise in underlying sales for the 11 weeks to March 21, but Tesco says its growth is being curbed by shoppers swapping to its cheaper discount brand range.

Tesco said it planned to cut capital expenditure to around Ł3.5 billion this year from Ł4.7 billion in 2008-09.

Net debt jumped to Ł9.6 billion to pay for an acquisition in South Korea and a deal to buy Royal bank of Scotland out of a financial services joint venture. (Reuters)