By Saabira Chaudhuri 

LONDON-- Tesco PLC shares soared Wednesday as its half-year results offered further signs its turnaround plan is bearing fruit, while Britain's largest retailer also announced a cost-cutting plan to improve its margins.

Shares in the retailer opened 7% higher Wednesday.

Following years of market-share losses, Tesco has poured money into launching more affordable products, simplifying its range and improving its customer service.

"Prices are more than 6% lower than two years ago, availability and service have never been better and our range is more compelling," said Chief Executive Dave Lewis.

For the first half, operating profit--stripping out large one-time charges--was GBP596 million ($770.4 million), compared with GBP372 million a year earlier.

On a statutory basis, Tesco reported a net loss of GBP91 million for the 26 weeks ended Aug. 27, compared with a loss of GBP365 million a year earlier, when earnings were hit by large charges.

Revenue, excluding value added taxes, edged up to GBP27.34 billion, from GBP27.23 billion, though the figure came in below the forecast of analysts polled by Thomson Reuters at GBP27.62 billion.

The retailer also reported an improving trend in like-for-like sales across all formats, including its biggest stores, which have suffered in recent years as consumers have embraced convenience stores and online shopping.

Tesco is aiming for an operating margin of between 3.5% and 4% by fiscal 2020, it said. As part of this, it will cut operating costs by GBP1.5 billion by improving distribution and simplifying its store operations. The company will spend GBP1.4 billion a year in capital expenditure through fiscal 2020 to drive these changes.

Tesco, which reported an adjusted operating margin of 2.18% for the first half, said it is on track to report adjusted operating profit of GBP1.2 billion for the year.

It also reported that the value of its food sales in the U.K. grew for the first time since 2013 in the second quarter.

Tesco said its U.K. like-for-like sales edged up 0.6% in the first half. Overall, the company's like-for-like sales rose 1%.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

 

(END) Dow Jones Newswires

October 05, 2016 03:31 ET (07:31 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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