Tesco’s share price (LON:TSCO) fell by more than four percent on Wednesday, April 17, after Britain’s biggest retailer reported the first fall in full-year net profit in 19 years.
Tesco said it had taken a ₤1 billion charge for quitting its US venture Fresh & Easy and a ₤804 million writedown on the value of its UK property portfolio. The company also shouldered a ₤495 million writedown in central Europe and ₤115 million in provisions for the mis-selling of payment protection insurance. These charges were a major factor behind the 51.5 percent fall in pre-tax profit to ₤1.96 billion in the year to February 13.
“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,” said Philip Clarke, Tesco’s chief executive officer.
Even before the one-time charges, Tesco’s underlying profit fell by 14 percent to ₤3.55 billion due to a slowdown in the UK business. Earnings were also hit by the impact of the Eurozone debt crisis, restrictions on store opening times in South Korea, and losses at the Fresh & Easy. Furthermore, Tesco’s efforts to expand in China were curbed by restrictive planning regulations. Still, the company maintained its final dividend of ₤0.1013 a share, bringing the full-year dividend to ₤0.1476. The final dividend will be paid on July 5 to shareholders of record on April 26.
Tesco said last week (Tesco to Book ₤1 Billion Writedown on Failed US Venture) that it is working on the sale of Fresh & Easy. Analysts opined that a closure of the failed US venture and then a piece-by-piece sale of the remaining assets is the most likely outcome. Apart from the ₤1 billion writedown, leaving the US could cost Tesco between zero and ₤500 million, Shore
Capital analysts estimated, depending on stores, distribution centres and factories disposals.
Tesco is exiting international markets and downsizing its domestic store expansion as CEO Clarke struggles to keep the retailer’s dominant market share. The chief executive has launched a ₤1 billion investment effort to improve domestic supermarkets and hire more staff to revitalise the UK business. “The U.S. exit is disappointing,” said Mike Dennis, Cantor Fitzgerald analyst, as quoted by Bloomberg. “We still believe Tesco’s biggest opportunity lies through the expansion in convenience formats.”
Despite its heavy investment, Tesco said that its UK fourth quarter like-for-like sales excluding fuel and VAT sales tax rose only 0.5 percent – a slowdown from the 1.8 percent growth in the six weeks to January 5. Total revenue from continuing operations, excluding VAT, was ₤64.83 billion in the 2013 fiscal year, up from ₤63.92 billion last year.
While still ahead of its supermarket rivals in terms of market share, Tesco is facing a greater challenge from Sainsbury’s, Asda and Morrisons which were investing in their UK operations at a time when Tesco was trying to expand globally.
Tesco’s share price was ₤3.7190 as of 17.04.2013, 09.00 GMT.