The end of the Tesco era

Tesco’s full-year results this week showed the supermarket chain slumping, with pre-tax losses of £6.4bn.

Tesco's full-year results this week showed the supermarket chain slumping, with pre-tax losses of £6.4bn. These were the worst results in the company's 96-year history, and the worst ever recorded by a British retailer. One-off write-downs on the value of property accounted for around £4.7bn of this figure.

Tesco has lost millions of pounds of business to fast-growing discount retailers such as Aldi and Lidl. Like-for-like sales (excluding fuel) fell by 3.6%. Overall, trading profits fell by 58%to £1.39bn.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

In addition, Tesco was hit with £416m of restructuring costs as it closed dozens of outlets and made thousands of staff redundant. The firm also felt the effects of a major accounting scandal that broke in 2014, under which it had overstated half-year profits by £263m.

What the commentators said

By recognising all the problems at once including, in this case, the huge revaluation of Tesco's thousands of stores in the UK and overseas the management can start with a clean sheet and subsequent results will look a lot better. Yet Tesco still faces "significant hurdles" in its turnaround.

Advertisement
Advertisement - Article continues below

The fundamental problem is that "a shift in UK consumer behaviour put Tesco between a rock and a hard place", said Daniel Latev of research firm Euromonitor. As discount retailers and high-end chains have outperformed, Tesco has been left "with a shrinking consumer base in the middle market".

Still, at least the firm's problems have given CEO Dave Lewis "the perfect opportunity to implement bolder and more painful changes for the company".

But whatever Lewis does to transform the firm, these results marks the "official end of the Tesco era", said John Ibbotson of consultancy Retail Vision. "Even if Tesco does recover, it will never again be the force it once was. With this huge loss, the decadent retail dynasty of Tesco has come to an end."

Advertisement

Recommended

Visit/519447/tesco-should-keep-its-asian-assets
Stockmarkets

Tesco should keep its Asian assets

The £7bn that Tesco could get for its Tesco Lotus business in Asia looks enticing. But holding on to it would be smarter, says Matthew Lynn.
15 Dec 2019
Visit/517688/the-british-equity-market-is-shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/514373/tesco-cashes-out-of-the-mortgage-business
Stockmarkets

Tesco cashes out of the mortgage business

Tesco Bank has left the mortgage market by selling its £3.7bn loan book. Its 23,000 customers will be moved to the Halifax, a subsidiary of Lloyds.
5 Sep 2019
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-bulls
Stockmarkets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/commodities/energy/oil/601107/oil-shoots-higher-have-we-seen-the-bottom-for-the-big-oil
Oil

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020
Visit/economy/uk-economy/601079/how-the-coronavirus-pandemic-is-killing-cash
UK Economy

How the coronavirus pandemic is killing cash

Covid-19 is making a huge difference to the way we live, work and do business. One of its less obvious effects, says Merryn Somerset Webb, is to accel…
31 Mar 2020