Tesco profit declines for second year as UK sales worsen

PUBLISHED : Thursday, 17 April, 2014, 1:09am
UPDATED : Thursday, 17 April, 2014, 1:09am

Tesco, Britain's largest retailer, reported a second consecutive decline in annual earnings after a slump in domestic sales and said it wrote down the value of assets in Europe amid deteriorating profitability.

So-called group trading profit fell 6 per cent to £3.32 billion (HK$43 billion) in the year to February 22, the supermarket company said, compared with the £3.23 billion average estimate of 13 analysts.

The grocer also said fourth-quarter same-store sales dropped 2.9 per cent in Britain excluding petrol, the most since chief executive Philip Clarke took office three years ago.

With Tesco shares languishing near a 10-year low, the results will increase the pressure on Clarke as he struggles to convince investors he can revive the British business, which accounts for three-quarters of sales, and seeks to unravel unprofitable international ventures.

[The] trading environment … is changing more rapidly than ever before

Tesco said it wrote down the value of its European assets by £734 million and its discontinued operation in China by £540 million.

"Our results today reflect the challenges we face in a trading environment which is changing more rapidly than ever before," Clarke said.

Clarke embarked on a second British revival plan in as many years in February after a £1 billion investment in stores, staff training and artisan bakeries and coffee shops failed to stem shoppers' defection to budget chains Aldi and Lidl.

The German discounters have gained market share with low prices on both everyday and luxury items, holding a combined 8 per cent in the 12 weeks to March 30, up from 6.3 per cent a year earlier, according to researcher Kantar Worldpanel. Tesco lost more than 1 percentage point in market share in that period to 28.6 per cent from 29.7 per cent a year earlier.

Clarke responded February 25 by saying Tesco will invest £200 million a year in permanent cuts to prices on everyday items such as milk, bread, carrots and cucumbers. Still, Tesco's prices on key produce lines are as much as 40 per cent more expensive than Aldi and even more costly than the upscale Waitrose, an April survey by Espirito Santo found.

Clarke does not only have to keep the discounters at bay. Wal-Mart's Asda and William Morrison Supermarkets have also committed to lower prices.

Clarke is also seeking to win shoppers back with more convenience stores, better looking supermarkets with restaurants and coffee shops, an improved online business, the Hudl affordable tablet, and Blinkbox, a digital movie, music and book platform.