TESCO revealed its first slump in profits in almost 20 years yesterday after confirming it will pull out of its unsuccessful US venture and reign in growth closer to home at a cost of £2bn to its bottom line.
Chief executive Philip Clarke said drawing a line under its Fresh & Easy business, which has 199 stores and employs about 5,000 staff – has wiped £1.2bn off profits.
Tesco is in talks with potential buyers and expects to make an announcement in the next three months.
The supermarket giant has also written down £800m on its UK property portfolio, after identifying around 100 sites bought five to 10 years ago it no longer plans to develop.
Clarke said the move reflected Tesco’s decision last year to bring an end to the so-called space race as consumers shift to shopping online. He declined to blame the write-downs on expansion problems inherited from his predecessor Sir Terry Leahy.
“All the write downs relate to strategic decisions that I’ve taken since being chief executive and are logical extensions of those,” he said.
Tesco still plans to open around 1.4m square feet in the UK this year including around 120 Express stores.
The write-downs sent pre-tax profits plunging 51.5 per cent to £1.96bn in the year to 13 February.
Tesco also booked a further £495m goodwill charge on its businesses in Poland, the Czech Republic and Turkey – markets which Clarke said were seeing “the worst set of economic circumstances for consumers since the end of communism”.
In the UK, like-for-like sales excluding fuel and VAT grew 0.5 per cent, in the fourth quarter of the year – a slowdown on the 1.8 per cent growth in the six weeks to 5 January.
Tesco is one year into a £1bn turnaround plan including revamping its stores and product ranges after posting a shock profit warning last year.
Clarke said its general merchandise arm was continuing to weigh down the business but its clothing brand F&F was performing strongly – with sales exceeding £1bn. On the horsemeat scandal, Clarke said it had “knocked confidence in ourselves” and consumers but the impact on sales had been minimal.