Tesco returns to profit as turnaround plan begins to pay off

Tesco swung to profit in its latest financial year, only 12 months on after the embattled retailer posted the biggest loss in its near 100-year history.

In the last 12 months, the FTSE 100 group posted a £162m pre-tax profit including exceptional items, compared to a £6.4bn loss in the previous year, as the group's core UK business generated its first underlying sales growth in the last three years.

Like-for-like sales excluding VAT and petrol climbed 0.9% in the fourth quarter in the UK compared with a 1.5% decline in the previous three months. Total like-for-like sales rose 1.6% in the final three months of the year.

On an annual basis , excluding fuel and VAT, and at constant exchange rates, total group sales climbed 0.1% to £48.3bn but fell 1.6% year-on-year at actual exchange rates.

Group chief executive Dave Lewis, who took charge of the company in September 2014 after leaving Unilever, said the results underlined the progress the company has made over the last two years.

"We have made significant progress against the priorities we set out in October 2014. We have regained competitiveness in the UK with significantly better service, a simpler range, record levels of availability and lower and more stable prices. Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case."

Tesco's performance last year was hampered by £7bn of write-downs and charges and marked one of the biggest losses for in British corporate history for a company that is not a bank.

However, despite a return to profit, Lewis warned that due to the 'challenging and uncertain' supermarket landscape, Tesco's first half profit growth would slow as the company remains committed to keeping its prices competitive.

The news took some shine off the results and economists warned increased expectations and tough competitions could make things difficult for the retailer.

"Despite a return to profit for Tesco, early price moves are negative as investors seek to capitalise on the recent share price rally which had seen the share price rise 30% year to date," said analysts at Interactive Investors.

"Tesco is trying to revitalise its fortunes by concentrating on service and price, but with increased expectations already priced in and the competition still fierce from discount providers, the prospects for the stock remain fragile."