Profits at Tesco have fallen for the first time in 20 years as the retailer announced a £1.2bn writedown for exiting the US market.
On Wednesday, Tesco said its underlying profit before tax fell by 14.5% to £3.5bn. Group profit before tax profits fell 51.5% to £1.96bn.
The retailer also confirmed it would wind up its loss-making Fresh & Easy chain, which has over 200 stores on the US west coast. Much of the £1.2bn writedown on the chain was due to fixed assets and onerous leases, Tesco said. Fresh & Easy opened its doors in 2007 when Tesco was under the leadership of Sir Terry Leahy.
In the UK, sales rose 1.8% to £48.2m, but profits fell 8.3% to £2.3m. Like-for-like sales excluding petrol grew 0.5% in the fourth quarter, down from 1.8% growth in Q3.
Tesco also recorded an £804m writedown on its UK property. It said it had reviewed more than 100 sites it had bought five to 10 years earlier - when the market was higher - and had now decided not develop them.
“With profound and rapid change in the way consumers live their lives, our objective is to be the best multichannel retailer for customers”
Philip Clarke, Tesco
“The announcements made today are natural consequences of the strategic changes we first began over a year ago and which conclude today,” said Tesco CEO Philip Clarke. “With profound and rapid change in the way consumers live their lives, our objective is to be the best multichannel retailer for customers.
“Our plan to ‘Build a Better Tesco’ is on track and I am pleased with the real progress in the UK. We have already made substantial improvements to our customers’ shopping experience, which are starting to be reflected in a better performance.”
Last year, Tesco announced a £1bn plan to refresh its stores. The scheme has added 8,000 roles to the company and 300 stores have been refreshed so far, Tesco said, adding that Express and Metro stores in and around London would be the next in line for refurbishment.
Tesco opened 120 Express and 26 One Stop stores throughout year. “We plan to open a similar amount of net new space in 2013/14, including a larger proportion focused on convenience,” the company said.
“We plan to open a similar amount of net new space in 2013/14, including a larger proportion focused on convenience”
Clarke gave more detail at a press conference, saying the retailer planned to slash the volume of new space by as much as 60% per year while focusing on the opening of nearly 1,000 new convenience stores. He said Tesco would cut the amount of square footage it was opening from the current level of 2.5 million sq ft per year to as low as one million sq ft per year, most of which would be Express or Metro stores.
As a result, Tesco will slam the brakes on expansion of its larger stores while it focuses on its convenience network - including Metro, Express and One Stop shops. “These stores are helping to revive the high street,” said Clarke, who added Tesco would open 160 convenience stores in the UK this year and 400 globally.
Elsewhere, online sales grew 12.8% to £2.3bn. “Clicks & Bricks is at the heart of our strategy for the future of the business,” Tesco said. Globally, online sales hit £3bn for the first time.
The retailer also said it planned to relaunch its Tesco Finest line later this year.
Addressing the horsemeat scandal that eruped in mid-January, the retailer said it had responded immediately and four affected products had been withdrawn.
“Any performance impact appears to have been short-term and largely limited to those frozen meat categories where products were withdrawn and to chilled ready meals. We have seen customers choosing to substitute some of the directly affected product groups with alternatives, such as fish and poultry,” it said.
Opportunities for growth
Gavin Rothwell, IGD Retail analysis manager, said: “The withdrawal from the US will be disappointing for Tesco, but put in context the US market only accounted for just over 1% of its total sales in 2011/12.
“This move will give Tesco greater opportunity to focus on core areas of growth.
“This includes building its presence in fast growing grocery markets, such as China, and becoming a leader in online global retailing. Tesco announced on Wednesday that its online group sales exceeded over £3bn for the first time.”
Ian Quinn contributed to this report.