CITY & CORPORATE
Tesco profits drop
17 April 2013 | by The Retail Bulletin
In the UK, profit was down 8.3% to £2,272m, whilst European profits were down 37.8% to £329m (actual exchange rates).
Philip Clarke, chief executive commented,"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.
“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.
“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.
“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."
Jon Copestake, Retail Analyst at The Economist Intelligence Unit commented, "There is no doubt that Clarke should be given more time to enact his turnaround plan for Tesco but, despite a good period of Christmas trading, the jury is still out over Tesco’s performance so far under his leadership. Falling profits can be attributed mainly to the substantial write-downs related to Tesco's exit from the US, as well as the revaluations of its UK property portfolio and its operations in the Czech Republic, Poland and Turkey. But the cost of turning round its UK business has also taken a toll, given the domestic market accounts for two-thirds of the retailer's fortunes (both in revenue and profit terms).
"Not only is UK consumer spending weak, but Tesco has also found its domestic share squeezed by competitors at the premium and discount end of the market. Mr Clarke ousted the UK chief executive over a year ago to take closer control of domestic affairs. But some of the decisions taken such as piecemeal investments in Giraffe and Harris + Hoole seem to complicate the previous 'back to basics' strategy that focused on providing better service and store revamps.
"Exiting the US market is likely to be the main focus for many observers, however This decision is long overdue given that the Fresh & Easy division failed to make a profit in 7 years of operating. However, a refocus on the UK market should not come at the expense of other foreign investments. Though profits in Asia have been hit in the past year by trading restrictions in Korea as well as market slowdowns and currency shifts, they have more than doubled in the past five years. They should be set to grow further now that Tesco has sold of its underperforming Japanese operations.”
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