Supermarket giant Tesco has seen pre-tax profit dive 51.5 per cent to £1.96 billion in its full-year as a result of its withdrawal from the US market, it has been announced today, the first time its profits have declined in 19 years.
Following a strategic review of its Fresh & Easy business, which has failed to operate at a profit since being launched by former Tesco CEO Sir Terry Leahy in 2007, the grocer confirmed today that it will exit the country, wiping £1.2 billion from its profits for the year.
On top of this, the US arm made a trading loss of £169 million in the 52 weeks ended February 23rd 2013 and current chief Philip Clarke explained that losses were inevitable after a strategic review of the business which was announced last December.
Commenting on today’s disappointing results, Clarke said: “The announcements made today are natural consequences of the strategic changes we first began over a year ago and which conclude today.
“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.”
In the UK, the chain has identified some 100 sites which were prepared for redevelopment which it no longer plans to work on, leading to a total one-off property write-down of £804 million.
Following an announcement in April last year that it would seek to reduce the level of new space in the UK portfolio going forward, the retailer said today in a statement: “We have carried out an in-depth review of our property pipeline.
“We have reviewed all of the schemes included in the pipeline individually, assessing their viability and potential to deliver an appropriate level of return on capital employed if built out.
“As a result, we have identified more than 100 sites – the majority of which were bought between five and ten years ago, at a higher point in the property cycle – which we no longer plan to develop and have therefore written their values down.”
In the UK, total sales rose 1.8 per cent to £48.2 billion while UK sales in the last three months climbed 0.5 per cent, and Clarke hailed the “real progress” made in the domestic market, though UK trading profit plummeted 8.3 per cent on the same period last year.
Online grocery sales continue to perform strongly, growing ahead of the market and up 12.8 per cent to £2.3 billion and Tesco has successful launched its dotcom grocery operations in 13 additional cities over the year.
Total international online sales grew by 46.5 per cent to £281 million, contributing to group online sales exceeding £3 billion for the first time.
“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.
“However, we have also faced external challenges which have affected our performance, notably in Europe and Korea.
“Our focus now is on disciplined and targeted investment in those markets with significant growth potential and the opportunity to deliver strong returns.”