Tesco’s full-year results this week showed the supermarket chain slumping, with pre-tax losses of £6.4bn. These were the worst results in the company’s 96-year history, and the worst ever recorded by a British retailer. One-off write-downs on the value of property accounted for around £4.7bn of this figure.
Tesco has lost millions of pounds of business to fast-growing discount retailers such as Aldi and Lidl. Like-for-like sales (excluding fuel) fell by 3.6%. Overall, trading profits fell by 58%
to £1.39bn.
In addition, Tesco was hit with £416m of restructuring costs as it closed dozens of outlets and made thousands of staff redundant. The firm also felt the effects of a major accounting scandal that broke in 2014, under which it had overstated half-year profits by £263m.
What the commentators said
“In the corporate world, it’s known as ‘kitchen-sinking’,” said Kamal Ahmed on bbc.co.uk. “Finding all the bad stuff buried down the back of the sofa, adding it together and announcing a whopping great loss.”
By recognising all the problems at once – including, in this case, the huge revaluation of Tesco’s thousands of stores in the UK and overseas – the management can start with a clean sheet and subsequent results will look a lot better. Yet Tesco still faces “significant hurdles” in its turnaround.
The fundamental problem is that “a shift in UK consumer behaviour put Tesco between a rock and a hard place”, said Daniel Latev of research firm Euromonitor. As discount retailers and high-end chains have outperformed, Tesco has been left “with a shrinking consumer base in the middle market”.
Still, at least the firm’s problems have given CEO Dave Lewis “the perfect opportunity to implement bolder and more painful changes for the company”.
But whatever Lewis does to transform the firm, these results marks the “official end of the Tesco era”, said John Ibbotson of consultancy Retail Vision. “Even if Tesco does recover, it will never again be the force it once was. With this huge loss, the decadent retail dynasty of Tesco has come to an end.”