Tesco revealed a £1.2 billion hit from its failed foray in America yesterday as annual profits more than halved after a difficult year.
The group confirmed plans to shut down its Fresh & Easy business in the US and reported its first fall in full-year group profits for two decades, down 51.5% to £1.96bn after a series of hefty property writedowns and slowing sales growth.
The return immediately knocked investor confidence, and hundreds of millions of pounds were knocked off the company’s value as shares fell during morning trading.
Tesco insisted its UK turnaround plans were on track as it said it saw its best like-for-like sales growth for three years in its final quarter, although the 0.5% rise marked a slowdown on the 1.8% surge seen during Christmas trading.
Britain’s biggest supermarket, with around 29% of the overall market, said it was scrapping more than 100 store developments which had been in the pipeline in the UK, leaving it with a writedown of £804 million on land bought at the height of the property boom.
The group said the days of land-banking ever-increasing acreages and building major stores the main driver of its success in the 1990s and 2000s were behind it as shoppers increasingly moved to buying online.
Chief executive Philip Clarke said: “The large stores we have are great and we are doing a lot of work to make them more vibrant and relevant for today’s customers, but we won’t need many more of them because growth in future will be multi-channel a combination of big stores, local convenience stores and online.”
The group also said its plans to exit the US were “well-advanced”, with interest from buyers for all or parts of the business.
Tesco said it would be at least three months before the tender process was concluded, but the group hopes to achieve a sale of Fresh & Easy as a whole to avoid redundancies among its US workforce.
The move to withdraw from the US has left it nursing a £1.2bn hit to its bottom line, with post-tax profits plummeting by 95.7% to £120m. On an underlying basis, pre-tax profits fell 14.5% to £3.5bn.
Mr Clarke admitted that sales over the past few months had been impacted by the horsemeat scandal as customers steered clear of frozen meat products.
Tesco had to withdraw four products from sale amid the crisis, but said the effect on overall sales was minimal and stressed that trading was now “back to normal”.
The group’s financial arm, the Edinburgh-headquartered Tesco Bank, also became the latest player to increase its bill for compensation claims relating to mis-selling of payment protection insurance (PPI), up from £30m in the half-year to £115m.
Tesco has been in recovery mode since falling market share and intense competition prompted the chain’s first profits warning in 20 years in January 2012.
That forced Mr Clarke, who started his career stacking shelves, to unveil a £1bn overhaul plan in April last year.
A year on from launching the fightback, Mr Clarke said he was pleased with the progress in the UK, although trading profits in the domestic business fell 8.3% to £2.3bn in the year to February 23.
UK like-for-like sales fell 0.4% excluding VAT and fuel over the year, despite buoyant Christmas trading, as a 5% fall in general merchandise sales weighed on its performance.
However, the company’s digital sales did pass the £3bn mark during the year.
Shares in the retailer closed down 15.1p at 369.8p in Wednesday’s trading.