Tesco See Growth in Sales, Cautions Bumpy Road Ahead

Britain’s largest retailer said Wednesday its recovery gained pace but warned that a price war in the supermarket industry would mean profit growth would be difficult to deliver in 2016.

The company, which has been hit hard by a huge scandal in accounting and the increase of discount chains from Germany, reported a rise in growth of annual profit for the first time in the past four years.

It is the first quarter of UK underlying sales growth for the past three years. However, the company cautioned that much more is still needed to be done.

Dave Lewis the CEO said the company feels as if the business is now stabilized and is no longer in the same crisis as sixteen months ago.

He added that more customers are purchasing more products, more often at our stores. That underlined the volume growth for the fourth quarter of over 3.3% and a rise of 2.8% in overall customer transactions.

However, the CEO warned that improvement in profit will not be smooth sailing as the supermarket chain must cut its prices and invest in product quality to help protect the leading position it holds across Britain.

Shares of Tesco, which hold 28% of the grocery market in Britain, have increased by 31% in 2016 on the hopes of a recovery but fell by up to 5% in European morning trading on Wednesday.

Sales at stores open more than one year in Britain were up 0.9% for the February 27 ending 13-week period, which is the fourth quarter of the company’s fiscal year.

Tesco reported as well that an operating profit for the full year before one-off items of more than £944 million equal to $1.3 billion, which was ahead of expectations on Wall Street of £932 million and the more than £940 million it earned in 2014-2015.

That however is far below the £3.97 billion trading profit Tesco generated during the 2011-12 year when it seemingly did everything right.

Prior to the update on Wednesday, the forecast for Tesco operating profit prior to items that are one-off for 2016-17 was £1.25 billion.