Tesco plc's (TSCDY) recovery and return to dividend have put other supermarkets in the U.K. on the back foot but could be a good sign for U.K. retail.
Britain's No. 1 supermarket on Wednesday said it had restored its dividend for the first time in nearly three years after posting better-than-expected first-half results.
Tesco shares were down 2.26% in morning trading, to change hands at 185.6 pence but the stock has gained around 15% over the past three months.
Tesco said pre-tax profits for the six months ending in August came in at £562 million ($746 million), firmly ahead of the Street consensus of £496.3 million. Sales for the six month period rose 3.3% to £25.2 billion, the company said, while overall revenues rose 3.7% to £28.4 billion, modestly ahead of the FactSet consensus of £28.165 billion.
The group also said it would resume an interim dividend -- of 1 pence per share -- for the first time since December 2014 when the company found itself embroiled in an accounting scandal.
Other supermarket shares were also on the back foot Wednesday morning, with Britain's No. 2 supermarket J Sainbury plc (JSAIY) down 0.36% at 246.6 pence, adding to a three-month loss of 1.36% compared with a gain of 9.7% for the FTSE 350 Food & Drug Retailers Index over the same period.
No. 4 supermarket Wm Morrison Supermarket plc (MRWSY) was down 0.59% to change hands at 235.20 pence a share, while online supermarket Ocado Group plc (OCDDY) shares were marked 0.30% lower at 298.8 pence.
A good performance by Tesco's online offering is putting pressure on both Morrisons, which has a deal with Amazon (AMZN) - Get Report , and Ocado. Tesco reported online grocery sales grew by 4.6% in the half driven by increases in both order numbers and basket size.
The supermarket also enhanced its online store to include the introduction of monthly subscription plans, nationwide roll-out of same day delivery and the launch of 'Tesco Now' offering delivery within one hour.
The return to dividend can also be a good sign for U.K. retail, which has been struggling with against a backdrop on rising inflation.
"What's particularly impressive is that Tesco has delivered such strong performance against a challenging backdrop," Hargreaves Lansdown Senior Analyst Laith Khalaf said in a note. "Consumer purses are under pressure and the costs of imported goods have risen, while at the same time there is no shortage of competitors vying for the business of U.K. shoppers. Tesco has done well to keep food price inflation down for its customers, while also improving its operating margin."
Tesco CFO Alan Stewart told CNBC Wednesday that it has been working with suppliers to mitigate the impact of inflation.
"Inflation is really something we've worked with suppliers to mitigate ... And we're not passing on as much inflation. More than a hundred of our suppliers have seen more than doubled volumes so as we improve our business, so we see our suppliers benefiting too," he told CNBC.
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