13th Apr 2016 08:45
LONDON (Alliance News) - Tesco PLC plunged to the bottom of the FTSE 100 on Wednesday despite it revealing a return to profit in its recently-ended financial year, following a devastating year before which saw it book a huge pretax loss.
Shares in Tesco were trading down 3.6% at 189.23 pence on Wednesday morning, the biggest decliner in the FTSE 100.
The UK's biggest retailer said it made a pretax profit in the year ended February 27 of GBP162.0 million, having suffered a GBP6.33 billion pretax loss the year before, when it booked a staggering GBP6.69 billion of impairments, writedowns and restructuring charges after admitting it had overstated profits in recent years by booking revenue too early.
These charges did not repeat in financial 2016, helping Tesco to return to profit once again, but the GBP162.0 million statutory pretax figure was considerably below the analyst consensus estimate of GBP447.0 million.
Group operating profit before exceptional items, however, grew to GBP944.0 million from GBP940.0 million, beating the analyst consensus figure of GBP932.0 million.
Revenue slipped to GBP54.43 billion from GBP56.93 billion, and while it was expected to fall, the final figure was slightly lower than the GBP55.32 billion analyst consensus estimate.
Tesco and its peers have been suffering from consistently falling sales in recent years amid fierce competition from German discounters Aldi and Lidl, resulting in the big four supermarkets having to drastically cut prices in an attempt to boost sales. This, in turn, has led to food price deflation in the UK grocery market.
During the year, Tesco's like-for-like sales continued to fall, but the decline began to slow quarter to quarter, until on Wednesday Tesco revealed that like-for-like sales in the fourth quarter finally returned to growth of 1.6%. This was Tesco's first quarterly positive like-for-like growth in three years.
Since Chief Executive Dave Lewis took the helm from former CEO Philip Clarke in late 2014, he has embarked on a massive restructuring of Tesco in order to try to pick the business back up. This has involved selling some non-core, loss-making businesses, slashing costs, closing unprofitable stores, and improving the quality and range of its products, while cutting spending plans and the dividend.
"We have made significant progress against the priorities we set out in October 2014. We have regained competitiveness in the UK with significantly better service, a simpler range, record levels of availability and lower and more stable prices. Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case," Lewis said in a statement.
"More customers are buying more things more often at Tesco," he added.
In order to achieve this, Tesco said it has reduced the prices of thousands of its products, reviewed each of its food categories and reduced the number of products by 18%, lowered the price of an average weekly shop by more than 3%, and introduced 2,000 new lines. It also reduced head office roles by a quarter and closed 60 unprofitable stores.
As a result of the changes, Tesco said it has seen an improving trend in both customer numbers and volume growth in the UK. Total full-year sales fell by 0.4% in the UK, but fourth quarter UK like-for-likes grew by 0.9% after several quarters of like-for-like declines.
"As a team, we are committed to serving shoppers a little better every day, in what remains a challenging, deflationary and uncertain market. We are confident that the investments we are making are leading to sustainable improvements for customers whilst creating long-term value for our shareholders," Lewis said.
Tesco did not provide any comment on recent press speculation regarding the disposal of more non-core assets.
In September last year, Tesco sold its Homeplus business in South Korea to a private equity-led consortium for GBP4.24 billion and, prior to that, closed down or sold all its Blinkbox businesses and its Tesco broadband unit. It also put corporate jets up for sale.
It followed this on Tuesday with the announcement of the USD129.0 million sale of just over half its stake in e-commerce platform Lazada Group SA to China's Alibaba Group Holding Ltd.
Rumours that Tesco is selling its Dobbies Garden Centres business, Harris & Hoole coffee shops and Giraffe restaurants have emerged lately, but, in a call with journalists, Lewis would not comment on this on Wednesday.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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