Five questions answered on Tesco’s annual profit drop as it exits US
Fallen for the first time in 20 years.
Supermarket giant Tesco today announced that its annual profits have fallen for the first time in 20 years and that it will exit the US. We answer five questions on Tesco’s current troubles.
How much are Tesco’s profits down by?
The superstore announced today that pre-tax profits were down by 51 per cent to £1.96bn and that post-tax profits, including the cost of the US exit, were down 95.7 per cent to just £120m.
What have Tesco’s UK sales been like?
In the last 3 months Tesco, which is the world’s third-largest supermarket group, has reported a 0.5 per cent increase, excluding fuel and VAT sales tax. Which is a slow down in growth of 1.8 per cent in the six weeks to 5th January, after strong Christmas sales.
For the last year, Tesco announced that total UK sales rose by 1.8 per cent to just over £48bn, with UK trading profit falling by 8.3 per cent to £2.27bn.
The company said its online grocery division was doing well with “another strong year” after sales grew by 2.8 per cent to £2.3bn.
How much has Tesco’s US exit cost the company?
Exiting its 199 Fresh & Easy stores in the US – which have never made a profit – is expected to cost the supermarket chain £1.2bn.
What other changes has Tesco announced?
As well as exiting the US, Tesco is also ending its operations in Japan, and referring to its China trading it said it would take a more measured approach.
The company has also announced a one-off UK property write-down, in which it has identified 100 sites it bought mainly through the property boom, but no longer plans to develop.
What have Tesco said in relation to these changes?
In a press statement Chief Executive Philip Clarke said:
"The announcements made today are natural consequences of the strategic changes we first began over a year ago and which conclude today. With profound and rapid change in the way consumers live their lives, our objective is to be the best multichannel retailer for customers.
We have set the business on the right track to deliver realistic, sustainable and attractive returns and long-term growth for shareholders. The consequences are non-cash write-offs relating to the United States, from which we today confirm our decision to exit, and for UK property investments which we will not pursue because of our fundamentally different approach to space.
We have also faced external challenges which have affected our performance, notably in Europe and Korea.
Our focus now is on disciplined and targeted investment in those markets with significant growth potential and the opportunity to deliver strong returns."