Retail giant Tesco has reported pre-tax profits down 51% to 1.96bn – its first profit drop in 20 years – and revealed plans to close its US chain of Fresh & Easy shops in its full-year results for the 52 weeks to February 23.
Tesco has experienced its first profit drop in 20 years
Profits after tax – which included the cost of quitting its US business – were 120M, a fall of 95.7% compared with its previous financial year.
Group trading profit was 3,453M, 13% down on the previous year.
Sales in UK stores – excluding fuel and VAT – rose by 0.5% in the last three months of its financial year.
Total UK sales were up by 1.8% to 48bn, while UK trading profit fell to 2.27bn – down by 8% on its 2011/2012 results.
‘Natural consequences’
Philip Clarke, chief executive, attributed the performance to restructuring changes. “The announcements made today are natural consequences of the strategic changes we first began over a year ago and which conclude today,” he said in a statement accompanying the results.
Clarke went on to tell BBC Radio 4’s Today programme that the world’s third largest supermarket group had delivered on its promise to focus on the UK and back it with major investment. “The reason our trading profits are down are largely because we have made that big investment: 8,000 new colleagues in stores and 8,500 new products developed.
“Stores are starting to be refreshed. Customers are starting to notice the difference. Our performance in sales is stronger than it has been for many, many quarters and there is so much more to come.”
Tesco also confirmed plans to close its troubled chain of 199 Fresh & Easy stores at a cost of 1.2bn , predicted by FoodManufacture.co.uk last week.
“We fought very hard in America and our team worked extraordinarily hard,” said Clarke. “But in the end, I’m responsible to investors and I know we can deliver more to them by leaving than I can by staying. So, regretfully we are going to exit and we have people interested in buying the business, and we are now in the process of gaining the maximum out of it that we can.”
‘Never easy to walk away’
Clarke added that while it was “never easy to walk away from something”, shopping habits had changed significantly since the retailer first planned its US entry. “The world is so different now from 2004 and 2005 when the research was originally undertaken. Who would have thought people would have shopped on a smart phone back then? Who owned a smart phone back then?”
While Tesco is also quitting its business in Japan, Clarke said the firm was committed to its remaining overseas ventures in China, Poland, the Czech Republic and Turkey.
“We made 1bn last year from our businesses outside the UK, so that’s very significant,” said Clarke. “But it is tough to grow a business in a declining market and that’s why our European markets are suffering though they made 329M of profit last year in the height of the Eurozone crisis.”
Tesco also announced a one-off property write down of 804M covering more than 100 UK properties.
Clarke also said he was "as sure as sure could be" that the retailer's horsemeat problems were over.
