Leahy laughs off Asda’s non-food ambitions as Tesco posts strong year’s sales and record profits

Tesco chief executive Sir Terry Leahy this week laughed off rival Asda’s ambitions to become the UK’s leading non-food retailer within five years, as he revealed record full-year profits up more than 10% to £3.4bn.

Last week Asda confirmed its aim of becoming the biggest non-food retailer, but Leahy this week said Tesco too planned “substantial” growth in its non-food business as the economy recovers.

He warned Asda: “It is better not to predict market share; it is better to look after customers. Customers will decide who is number one.”

Leahy said Tesco delivered a “particularly strong” performance in non-food, with star categories including electricals, entertainment, toys and clothing. In the year to February 27, group non-food sales rose 6.2% to £13.1bn, with £9bn in the UK and £4.1bn internationally.

Leahy would not comment on the number of non-food Homeplus stores Tesco wants in the UK, but added that it will open 2.4 million sq ft of new space this year - a third of which will be non-food.

Leahy, who vowed the economic recovery is firmly on track, said Tesco is now “back in the lead” in the UK. Sales were up 5.5%, excluding petrol, to £42.2bn. Profit increased 6.7% to £2.41bn. Like-for-likes were up 3.7% in the first half and 2.7% in the second.

The UK performance was helped by the launch of its Discounter brands, as well as its Double Clubcard promotions. He said Tesco’s strategy with promotions and Clubcard is “sustainable” as it “builds loyalty at the same time as sales”. The Double Clubcard offer will continue, and mailings will now be kept at six times a year instead of the previous quarterly, with the new times being pre-Christmas and pre-Easter.

Tesco is also in the process of rolling out its Clubcard internationally, now in seven markets.

Tesco group sales, excluding petrol, were up 8.5%, or 6.8% including petrol, at £62.5bn. In its international markets, Asia was a star performer with sales up 15.3% to £9bn at constant rates. Chinaand South Korea were both highlighted as key regions, and across Asia it plans to open 4.9 million sq ft of space.

In India it will open its first cash-and-carry towards the end of 2010.

In the US, Leahy was confident Fresh & Easy is “already working”, and said losses had peaked at £165m. It revamped stores, launched marketing campaigns, and reported sales soared 73% to £354m. It will open another 50 shops this year, which will take the chain to 205.

Outgoing Tesco clothing chief Terry Green has set up a consultancy, Task Retail, to advise Tesco on its online clothing strategy one week a month, as well as to work with other non-competing retailers. He will also oversee the global expansion of clothing brand F&F as chairman of the F&F governance board.