Tesco today called time on its disastrous venture in the US as it reported a 50% slump in annual profits, its first decline in nearly two decades.
The main damage to the grocery giant’s bottom line was done by writedowns of £2.4 billion, largely on the value of its Fresh & Easy operation in America and its UK property portfolio after it said it would now not develop more than 100 sites in its land bank, reflecting the end of the “space race” driven by the seismic shift to online shopping.
Tesco, which has operations in 13 countries, also suffered lower sales of frozen meat after it became embroiled in the recent horsemeat scandal and admitted that weak demand for non-food products, such as big-ticket electricals, had “continued to weigh” on its UK performance. The supermarket is also fighting a number of fires across its international empire, with only Thailand and Malaysia posting a rise in underlying sales in its fourth quarter.
Fresh & Easy launched in Nevada, California and Arizona in late 2007 but Tesco started a strategic review in December. The chain has failed to capture the imagination of US shoppers and racked up losses of about £850 million over the last five years despite Tesco investing about £1 billion.
Philip Clarke, pictured, Tesco’s chief executive since March 2011, said: “We fought hard. In the end, I’m responsible to investors, and I know I can deliver more for them by leaving than I could by staying.”
Finance director Laurie McIlwee said the process to sell Fresh & Easy was “going well” but would not be concluded for at least three months. Tesco has taken a £1.2 billion hit from treating Fresh & Easy as a “discontinued operation”, including a £1bn writedown on asset values and £169 million trading losses.
Pre-tax profits tumbled by 51.5% to £1.96 billion over the year to February 23 after the bottom line was further dented by a £804 million writedown on its UK property portfolio. The group also incurred charges of £495 million on the value of its central European operation.
Total sales rose 1.3% to £72.36 billion. The full-year dividend is maintained at 14.76p a share.
Comment: Clarke must focus on home front
James Ashton, City Editor
Today's trolleyload of exceptional charges marks a classic kitchen-sinking exercise that most new bosses would be pushing to the checkout within months of taking the helm.
The fact that Philip Clarke is two years into the top job suggests getting Tesco back on track is a bigger task than anyone thought.
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The retreat from America is embarrassing. But it is arguably at home that the bigger change are taking place. Ambitions for domination are over as new store developments are scrapped. What matters now is grinding a better return from all that space Tesco has jealously assembled.
Clarke says Tesco already looks better on the inside but I’m not sure external perception of the business have changed yet. Shareholders must hope he’s on the right track.
