It goes without saying that it’s not been a good year for Britain’s biggest retailer. But the scale of Tesco's woes only became truly apparent this morning when it reported a loss of £6.38bn, the worst in its history and one of the biggest corporate losses Britain has ever seen. That compares to a profit of £2.26bn in the previous year, while revenues were down 3% to £65.7bn.
‘It has been a very difficult year for Tesco,’ admitted the man who’s been tasked with sorting this mess out, the supermarket chain’s chief exec Dave Lewis. ‘The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years.’
To be fair, the company’s profit figures were dragged down significantly by one-off costs including a £4.7bn property write-down and £416m in restructuring costs, but its underlying pre-tax profits were still down 68.4% to £961m. The figures cap off an absolutely woeful year for the retailer, which was forced to disclose in September that it had overstated its profits by more than £250m. Now that it's made a loss, it won't be paying the millions of pounds in corporation tax it was paying before, which is unlikely to go down well at election time.
Today’s announcement was pretty up front about the problems Tesco has endured but was very much shaped to create the impression that Lewis has made a clean break and is now in a good position to rebuild the company’s operations and reputation. This 'kitchen sinking' - throwing all of the problems out into the open in one go, is all well and good, as long as there's genuinely no skeletons left in the closet.
‘Over the last six months we have put customers back at the centre of everything we do,' Lewis said. 'By focusing on the fundamentals of availability, service and targeted price reductions, we have seen a steady increase in footfall, transactions and, most significantly, volumes. More customers are buying more things at Tesco.’ The spin seems to have done the trick. Tesco’s shares were up 1.3% this morning to around 238p.
There are plenty of problems Lewis still needs to deal with though. Tesco’s total debt pile stands at a whopping £21.7bn (more than the national debt of Cyprus), including leases and its pension deficit, which shot up from £2.6bn to £3.9bn in one year.
He’s also got to deal with the ridiculous amount of competition in the grocery market amid rapid food deflation. The market has shifted substantialy in the last few years, towards discounters and online, but also away from hypermarkets and towards convenience stores - which explains Tesco's massive property write-downs. If the value of its biggest stores continues to fall then that could cause a massive headache.
That's not to mention pending investigations by the Serious Fraud Office and Groceries Code Adjudicator, and the prospect of the supermarket being sued by its own shareholders. Dave Lewis has made a good start but Tesco still has a long way to go.