Tesco plc, the UK's biggest retailer, posted a bigger-than-expected fall in full year profits - its first in 20 years - and announced plans to exit its loss-making business in the United States.
Underlying profit for the year ending on 13 February fell 14.5 percent to £3.549bn, the company said Wednesday in a statement published on its website. It was the first full-year profit decline for the group in more than two decades. Sales increased by 1.3 percent to £72.363bn, the company said. Tesco's US operations, which operate under the "Fresh & Easy" brand, were examined as part of the group's on-going review of its global operations and the decision was taken to exit that market at a cost of around £1.2bn, the company 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," said CEO Philip Clarke in the statement. "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."
The US venture, which began in 2007, grew to around 200 stores and 5,000 employees - but also ate more than £1bn in the cash and failed to produce a single year's profit. Chief financial officer Laurie McIlwee told investors on a conference call following the results that the US exit likely won't be concluded for another three months.
With the Fresh & Easy writedown, Tesco's statutory profit before tax was a reported £1.96bn, a 51.5 percent decline from last year. The figure includes an £804m writedown of the group's UK property portfolio and £115m that the company will set aside to cover customers of its banking division who were mis-sold payment protection insurance.
UK sales growth in the final three months of the group's financial year slowed to 0.5 percent, the company said, compared to the 1.8 percent pace the company maintained during the six week Christmas and New Year's period which ended on 5 January.
Tesco said last spring that it was planning a £1bn investment programme to arrest the persistent decline in UK market share. The programme led to a one-notch cut (to Baa1) in its credit rating by Moody's Investors Service, which came eight days after the company issued a rare profit warning that wiped around £2.5bn from its market value.
Tesco is earmarking £1bn in capital and staffing improvements in the UK business, the company said, including a direct £400m investment. The plans include adding 8,000 new staff in existing stores and creating a net new 20,000 jobs over the next two years, the company said. About 430 UK supermarkets, nearly a quarter of its entire floor space in Britain, will be addressed in the overhaul.
Tesco shares fell 3.4 percent to 371.75 pence in the opening minutes of London trading, trimming the year-to-date gain to around 11 percent.