Tesco profits down 13% while group sales increase 1.3% as it confirms US exit

Group sales climbed 1.3% to £72.3bn.

In the UK, group trading profit was down 8.3% to £2.2bn but Clarke said its plan to ‘Build a Better Tesco’ is “on track”. UK sales were up 1.8% to £48.2bn. Like-for-like sales excluding VAT and petrol in the UK were down 0.4%.

Following the strategic review of its Fresh & Easy chain in the US, Tesco confirmed the outcome would be an exit. The process is still ongoing but it has written down the assets of the business and booked a provision for ongoing liabilities. The impact will total £1.2bn.

Also, following Clarke’s decision to reduce the amount of new space the grocer takes in the UK, it has reviewed its property pipeline. Tesco has identified 100 sites, the majority of which were bought between five and 10 years ago, which it no longer wants to develop. It has therefore written down their values, leading to a one-off UK property write-down of £804m.

With the write-downs, statutory profit before tax fell 51.1% to £2.1bn.

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.”

He added: “We have set the business on the right track to deliver realistic, sustainable and attractive returns and long-term growth for shareholders. The consequences are non-cash write-offs relating to the United States, from which we today confirm our decision to exit, and for UK property investments which we will not pursue because of our fundamentally different approach to space.”

Tesco reported a strong online performance with group sales up 13% to over £3bn for the first time. Its clothing brand F&F is also showing strong sales, exceeding £1bn in the UK with 9% sales growth.

The grocer will also scale back its sale and leaseback programme.

In the UK, Tesco said its plan to ‘Build a Better Tesco’ delivered an improved performance, despite trading conditions for the market as a whole remaining difficult. It said consumer confidence remained very low and customers managed budgets carefully in the face of high inflation. However, it said its underlying performance significantly improved, led by a strong performance in food.

Tesco said general merchandise has “continued to weigh on UK performance” in the year, with a fall in like-for-like sales of 5%. Clothing, however, was strong.

Last year’s £1bn six-point plan to ‘Build a Better Tesco’ has “made significant progress”, said the grocer. It said customer perception had improved.

It has hired 8,000 new staff and more than 250,000 staff have received customer service training. It has refreshed more than 300 stores. With investment in coffee shop Harris + Hoole, restaurant Giraffe and upmarket bakery Euphorium, Tesco said it has “made important steps towards turning our stores into compelling retail destinations for customers”.

The relaunch of Everyday Value in April last year has resulted in like-for-like sales tracking at over 6% for the value brand.

Tesco said the impact of the horse meat crisis has been short term and “largely limited to those frozen meat categories where products were withdrawn and to chilled ready meals”. It said it has seen customers choosing to substitute some of the directly affected product groups with alternatives, such as fish and poultry.

Tesco’s international businesses have been impacted by external pressures. In Asia, new regulatory restrictions on opening hours in South Korea impacted “broadly in line with our expectations” and in Europe, consumers have been affected by “a combination of government austerity measures, increased unemployment and higher inflation”.

In Asia, like-for-like sales for the year were down 1.7%, and in Europe they fell 2.3%.

Tesco launched dotcom grocery services in three further cities, meaning it now has the service in eight of its 11 international markets. Total international online sales were up 46.5% to £281m.

The grocer has adopted a new approach to capital allocation internationally. It will commit a greater proportion of capital in Korea, Thailand and Malaysia where it has strong positions. In Europe, it will concentrate on holding current positions and improving returns. In less mature markets such as China, Turkey and India, it will focus on establishing a profitable approach to growth.