British megaretailer Tesco (OTC BB: TSCDY.PK) pulled its best Alfred E. Neuman impression yesterday ("What, me worry?"), coolly posting an earnings increase of 12% despite a global economic slowdown. In response to this positive announcement, Tesco's ADR shares traded up 8% to close at $25.05.
Here are some additional highlights from the report:
- Sales rose 11% to $93.4 billion.
- International sales grew 25.3%.
- Tesco will maintain its venture in the U.S., but expects to lose $158 million on it this year.
- The core U.K. division grew sales by 6.7% and noted both increased traffic and greater "spend per visit."
Most importantly, however, was the company's encouraging outlook, with CEO Terry Leahy noting, "We begin the new financial year confidently -- with a good start in the U.K., excellent progress in our established international markets and promising early performance from our investments in future growth, particularly in the United States, China and Turkey."
California rolls
It's not every day that you hear a CEO use the terms "future growth," "United States," and "China and Turkey" in the same breath. Nevertheless, Tesco has found a way to capitalize on the American market where even domestic groceries have failed.
For example, in just six months, Tesco has propped up more than 60 "Fresh & Easy" stores across California, Arizona, and Nevada, and expects to add 150 this year alone. The stores' preliminary results have "surpassed expectations," with sales densities "already higher than the U.S. supermarket average."
Tesco's "Fresh & Easy" stores are different from traditional U.S. grocers like SUPERVALU (NYSE: SVU ) , Safeway (NYSE: SWY ) , and Kroger (NYSE: KR ) because they are the size of convenience stores, but offer full-service grocer amenities like gourmet and organic ready-made meals, flowers, and wine in addition to the simple everyday goods like bread and milk.
Normally, such a product lineup would translate into higher prices for the consumer, but Tesco brought its Wal-Mart-like distribution prowess across the Pond with it. Thus, it can deliver lower prices while maintaining healthy profit margins. Tesco's American adventure has only just begun, but investors should nonetheless feel reassured about Tesco's nascent development in the West.
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