Tesco sees fall in profits

For the first time since 1994 Tesco has revealed a loss in annual profits, after it announced its decision to pull from the US, preliminary results showed today.

At a cost of more than £1bn, the company will remove its 199-store chain of Fresh & Easy shops from the US, which have never made a profit. The removal of the offer in America is to be treated as a “discontinued operation”, within the results released today.

Reduced growth in the UK

As well as pulling out of the US, Tesco announced it would reduce the level of new operating space in the UK.  

It disclosed a one-off UK property write-down of £804m and said it would focus on the stores it owns, rather than build more. This was due to a decrease in value of 100 sites bought by the retailer between five and 10 years ago “at a higher point in the property cycle”.

Tesco said: “We have carried out an in-depth review of our property pipeline. We have reviewed all of the schemes included in the pipeline individually, assessing their viability and potential to deliver an appropriate level of return on capital employed if built out.”

Philip Clarke

In a statement, Tesco 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.”

Clarke, who discussed the change in consumer shopping habits on the BBC’s Today programme this morning, pointed out that customers were using smart phones more to shop. He explained that a lot had happened in the past 10 years, which have had an effect on how customers are shopping.

Not all bad news

However, the shift in the way customers shop has also had a positive effect on some of Tesco’s figures and the company has seen “strong online performance”, with group sales up 13% to more than £3bn for the first time.

The company also saw UK sales rise by 1.8% to more than £48bn, but UK trading profits did fall by 8.3% to £2.27bn.

Meanwhile, Shore Capital analysts Clive Black and Darren Shirley said that, although Tesco faced challenges, “we continue to believe that a journey has commenced that will be beneficial for shareholders”. The pair, therefore, upgraded their recommendation of the Tesco share to “buy”.