By Saabira Chaudhuri
LONDON-- Tesco PLC reported the steepest ever full-year loss for
a British retailer amid a raft of charges, capping the most
tumultuous year in the grocer's 96-year history.
For the year to Feb. 28, Tesco's pretax loss was GBP6.38 billion
($9.52 billion), versus a profit of GBP2.26 billion a year ago. The
company logged charges of GBP7 billion, including GBP4.7 billion
tied to the impairment of fixed assets.
Last year was perhaps the most turbulent in Tesco's history, as
the company lost its chief executive and financial chief, and
discovered an accounting overstatement, spurring a criminal
investigation and the suspension of a number of employees. Shares
touched their lowest level in over a decade and legendary investor
Warren Buffett called his investment in Tesco a "huge mistake."
Tesco, similar to other big grocers, is also in the midst of a
price war as it scrambles to defend market share from hard
discounters such as Lidl UK GmbH and Aldi Stores Ltd.
However, new Chief Executive Dave Lewis is widely seen by
analysts as the man to put Tesco back on track, and Wednesday's
kitchen-sinking clears the deck for his turnaround to start taking
shape.
"It has been a very difficult year for Tesco," Mr. Lewis said.
"The results we have published today reflect a deterioration in the
market and, more significantly, an erosion of our competitiveness
over recent years."
Still, analysts said the report could have been worse. Bernstein
analyst Bruno Monteyne nodded to a 1% rise in U.K. same-store sales
volume in the fourth quarter, and said the pension deficit was also
narrower than feared. "Forward-looking, things are materially
better than expected," he said.
Tesco's profit excluding property gains and losses--a figure
closely watched by investors--fell to GBP1.4 billion from GBP3.32
billion a year earlier, meeting analysts' estimates. Mr. Lewis
warned that there was no guarantee that Tesco could make the same
amount in the current year, saying given the challenges ahead,
hitting GBP1.4 billion again "isn't a walk in the park."
Mr. Lewis also cautioned that the "market is still challenging
and we are not expecting any let up in the months ahead." He said
investors would likely see "an increased level of volatility in
short-term performance." After rising early in Wednesday's trading
session, shares fell 5.7% in afternoon trading.
Adjusted earnings a share fell to 9.42 pence from 32.05 pence a
year earlier. Tesco reported a net loss of GBP5.77 billion,
compared with a profit of GBP970 million a year ago.
Revenue edged down to GBP63 billion from GBP63.56 billion.
Analysts polled by FactSet had expected revenue of GBP61.93
billion.
Under Mr. Lewis, Tesco has been working to reverse a period of
slumping sales and falling market share. The new CEO has closed
unprofitable stores, reduced Tesco's product lineup, put more staff
on the shop floor and said it would begin selling off noncore
assets.
Tesco's big property write down comes after the company in
January said it would close 43 unprofitable stores and scrapped
plans to open a string of large stores. The grocery industry is in
the midst of a period of upheaval as customers have moved away from
doing a large weekly shop to shopping more frequently at smaller
convenience stores. Britain's biggest grocers are also embroiled in
a price war as they try to defend their market share from
discounters who lured customers during the recession.
Goldman Sachs has estimated that Tesco, J Sainsbury PLC and Wm.
Morrison Supermarkets PLC need to close 20% of stores. Rival
Sainsbury in November said it had taken a GBP628 million charge
tied to impairments on a number of stores and its decision to not
go forward with certain property projects. Morrison last month took
a GBP1.27 billion property impairment charge.
Among other charges, Tesco also took a GBP416 million charge for
restructuring and a GBP208 million charge to adjust for commercial
income in prior years. Tesco is the subject of a continuing
investigation by the U.K. Serious Fraud Office into a GBP263
million accounting misstatement tied to commercial income, which
could result in criminal convictions for individuals or the company
as a whole. Commercial income includes promotional money, discounts
and rebates from suppliers.
On a call with reporters, Mr. Lewis said Tesco's approach to
commercial income had become "motivated by profit rather than
serving customers," and had "clouded our focus." He said the
retailer is working to slim ways of generating this income down to
five this year from 24 last year.
Mr. Lewis defended Tesco's performance despite the multibillion
loss, saying over the past few months "what we have shown is that
the fundamental core of our business is still very strong and
actually when we reapply ourselves we can be very competitive in
the market place." He said if Tesco has to make further investments
to keep the momentum of the business going it will do so despite
the impact on profit. "This is about rebuilding a great business,"
said Mr. Lewis.
Tesco earlier this year said it would consider closing its
salary-linked pension plan, one of the largest in the
private-sector. The company on Wednesday said its after-tax pension
deficit had ballooned to GBP3.9 billion from GBP2.6 billion a year
ago. The company said it has struck a deal with its pension trustee
for GBP270 million a year to start closing the deficit.
Tesco has pulled out of Japan and the U.S. and struck a joint
venture in China, but the supermarket giant still operates out of
11 countries globally. In the U.K., revenue fell 1.8%. Revenue in
Asia fell 4.1%, while revenue in Europe dropped 8.5%. Hungary, said
Tesco, will be a particularly challenging market going forward
given new legislation and taxes that raise costs.
The company on Wednesday said its review of strategic options
for its DunnSHYhumby data-analysis unit are "well-advanced."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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