The result represents the beleaguered retailer’s third year of falling profits and compared with a pre-tax profit of £2.26bn last year. A key factor behind the result was the falling property value of its UK stores – accounting for about £4.7bn of the losses, after 43 big stores were earmarked for closure earlier this year. The fall in value reflects fewer shopper visits to big Tesco stores in towns.
Group sales continued to fall – down by 3% to £69.65bn, while group trading profit plummeted by nearly 60% to £1.39bn, compared with £3.3bn in last year's results. UK like-for-like sales, excluding fuel sales, dropped by 3.6%.
‘Very difficult year for Tesco’
In addition to falling property values, Tesco boss Dave Lewis also blamed the retailer’s worst result on a lack of competitiveness. “It has been a very difficult year for Tesco,” said Lewis in a statement.
“The results we have published today [April 22] reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years.” But a renewed focus on customers had put the retail giant back on the road to recovery, he claimed.
“We have faced into this reality, sought to draw a line under the past and begun to rebuild, and already we are beginning to see early encouraging signs from what we’ve done so far.”
During the past six months the store had “put customers back at the centre of everything we do”, said Lewis. “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.”
Lord Haskins' view
“Tesco used to be a great innovative company but they are just not innovating. If you stop innovating in retail, you’re dead.”
Former chairman of Northern Foods Lord Haskins described the scale of the challenge facing Tesco as “almost incredible” and blamed its dire performance on a failure to innovate.
“Tesco used to be a great innovative company but they are just not innovating,” the former government adviser told BBC Radio 4’s Today programme. “If you stop innovating in retail, you’re dead.”
By contrast, competitors Waitrose and Marks & Spencer had continued to introduce innovation and were witnessing the benefit in the form of rising sales.
“Tesco was once a wonderful innovator. But since [former boss Sir Terry] Leahy left, the absence of innovation at Tesco has been startling,” said Haskins.
‘Not appear under the name Tesco’
Bruno Monteyne's recipe for recovery
- More fresh food
- Fresher shopping environments
- Improved online shopping
Haskins went on to claim the scale of Tesco’s problems was so huge, that while the retailer would not disappear, “it might not appear under the name Tesco”.
Former Tesco supply chain director Bruno Monteyne said the dire results marked the end of its recent “horrible” past. “Today is the closing act of the mistakes made over the past four to five years by Tesco,” the retail analyst told the programme.
The retailer should play to its strengths by introducing more fresh food, fresher shopping environments and improved shopping on line, he added.
But Tesco’s shares rose by more than 1% in early trading on the London Stock Exchange; suggesting investors believed the retailer had plumbed the depths of its current crisis.
Meanwhile, Tesco is being investigating by the Serious Fraud Office, after admitting overstating its half-year forecast in summer 2014 and the Financial Reporting Council.
Groceries Code Adjudicator Christine Tacon is also investigating the retailer in a bid to probe claims it mistreated suppliers.
Tesco results: at a glance
- Pre-tax loss of £6.38bn
- Group sales fell 3% to £69.65bn
- Group trading profit fell 58% to £1.39bn
- UK like-for-like sales, ex fuel, fell by 3.6%