Tesco expected to report first profit fall

Tesco will report its first fall in underlying annual profits in two decades on Wednesday, according to analysts.

The British retailer is expected to announce an underlying pre-tax profit of £3.5bn in the year to end of February 2013, a 10.7% decline from the £3.92bn reported the previous year, Vuma Consensus said.

The drop reflects the cost of restructuring which was launched after the supermarket issued a profit warning in January 2012.

The £1.0bn plan includes more employees, refurbished stores, revamped food ranges and price initiatives. It aims at reversing years of underinvestment and turning around a loss of market share to rivals like Sainsbury and Wal-Mart's Asda.

Tesco, the world's third largest retailer after Wal-Mart and Carrefour, has also been affected by the Eurozone debt crisis, regulatory difficulties in South Korea and losses at its Fresh & Easy business.

The grocer was expected to exit from the California-based venture which would alter results.

A statutory pre-tax profit fall would be greater than the underlying decline if the company includes a substantial asset write-off for quitting the business.

Analysts forecast closure of Fresh & Easy, followed by a disposal of saleable assets. A writedown of the last reported book value of the business would come to about £1.0bn. Broker Shore Capital estimates an additional £250m in store leases and staff redundancy costs.

Nevertheless, Tesco's Chief Executive - Philip Clarke - has said the company was back on track with underlying sales growth of 1.8% for the six weeks to January 5th, its highest in three years.

The group is anticipated to reveal like-for-like sales growth of zero to 0.5% for the fourth quarter, following a Europe-wide scandal over the discovery of traces of horsemeat in beef products.

Tesco was among a string of retailers forced to withdraw products from its shelves.

It is expected to pay a 2012-13 dividend of 14.68p, slightly down from 14.76p in 2011-12.

RD