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April 16, 2014

UK: Tesco FY profit slides on lower sales, margins

Tesco booked a near 7% drop in underlying pre-tax profit in fiscal 2013/14, a year that saw margin dented by investments in creating a "compelling offer for consumers" in a bid to stem the firm's sales decline.

Tesco booked a near 7% drop in underlying pre-tax profit in fiscal 2013/14, a year that saw margin dented by investments in creating a “compelling offer for consumers” in a bid to stem the firm’s sales decline.

The company said today (16 April) that underlying pre-tax profit was down 6.9% at constant exchange rates, dropping to GBP3.05bn (US$5.13bn). Including charges related to Tesco’s partial withdrawal from China, where the group established a joint venture agreement with China Resources Enterprise, pre-tax profit was down 9.8% in the 12 months to 22 February.

Stripping out the negative impact of currency exchange, group trading profit fell 6% to GBP3.31m. Trading profit in Europe was particularly weak, dropping 32.8% including foreign exchange, while in the UK it slipped 3.6% and Asia declined 6.8%.

The company saw a 34 basis point drop in its trading profit margin as it invested in cutting prices and improving its proposition.

“We are transforming Tesco through a relentless focus on providing the most compelling offer for our customers,” CEO Philip Clarke said.

However, despite these investments, the group’s total full-year sales fell 0.2%, including currency exchange, to GBP70.89bn. In the group’s closely watched UK business, like-for-like sales fell 1.3%. The company said that LFL revenue was “held back” by an “increasingly competitive grocery market in the second half”.

“Whether today marks the nadir of Tesco’s fortunes remains to be seen, as the beleaguered behemoth remains under pressure,” Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said.

Click here for a round-up of what City analysts thought of the results.

And click here for coverage of Tesco’s webcast on the results, including Clarke’s comments on the pricing environment in the UK, as well as its online business.

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