Britain's Tesco targets further margin improvement

LONDON (Reuters) - Tesco, Britain's biggest retailer, is targeting expansion of its profit margin beyond that of an existing multi-year recovery plan, it said on Tuesday.

Celebrating its 100th anniversary, the group is deep into a turnaround programme under Chief Executive Dave Lewis after a 2014 accounting scandal capped a dramatic downturn in its fortunes.

At a Capital Markets Day (CMD) presentation to analysts and investors, Tesco also said its priority for allocating capital was reinvesting in the business, maintaining its debt ratios and growing its dividend. After that it would consider acquisitions and returning surplus cash to shareholders.

Shares in Tesco were up 4% at 1524 GMT, taking its gains for 2019 to 24%.

Lewis said in April Tesco had met, or would soon meet, most of the turnaround goals he set in 2016, including a key margin target of earning 3.5 to 4 pence of operating profit for every pound customers spend by the end of its 2019-20 financial year.

"We have the further cost reduction and mix opportunities that allow us to offset inflation, improve our customer offer and/or increase margin," Tesco said at the CMD.

EFFICIENCY SAVINGS

Lewis has already revamped relationships with suppliers, lowered prices versus major competitors, streamlined product ranges and improved store standards and customer service.

Last year he bought wholesaler Booker for nearly 4 billion pounds ($5 billion) and also introduced the Jack's discount format to take on fast-growing German discounters Lidl and Aldi.

At the CMD, Tesco's management detailed multiple initiatives to achieve efficiency savings and grow revenue, including optimising space, reducing costs and growing profitable categories, such as F&F clothing, in its larger stores, while tailoring its offer more in smaller stores.

Presentation slides also showed a new higher-end store concept with the "Tesco finest" banner.

The group reiterated a target to achieve 2.5 billion pounds of incremental revenue growth from Booker by 2022 as it leverages the combined group's buying power and adds new products and services.

Tesco also said it was well placed to grow in Asia, particularly in Thailand, where it sees an opportunity for 750 new convenience stores over the "medium term". It currently has 1,583.

Tesco also detailed opportunities to grow the distribution capacity of its online business by 35% and to develop partnerships such as with urban fulfilment centre firm Takeoff Technologies and delivery robot company Starship Technologies.

Last Thursday Tesco reported a slowdown in first-quarter sales growth but said it was outperforming a "subdued" British market.

($1 = 0.7985 pounds)

(Reporting by James Davey; Editing by Paul Sandle, Jan Harvey and Emelia Sithole-Matarise)