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Tesco results – “Getting all the skeletons out of the closet early on” Prof Crawford Spence, Warwick Business School

by on April 22, 2015 in Lead Article, News you can use, Retail, Retail News

Professor Crawford Spence, of Warwick Business School comments on the Tesco results

Tesco posts record £6.4bn annual loss

These figures are absolutely huge – nearly the biggest loss in UK corporate history. However, they need to be understood in context. They  relate mostly to asset write-downs rather than poor trading performance.

Underlying trading performance for Tesco has actually not been too bad in recent months. In many ways Tesco has decided to make these losses now rather than later.

It all needs to be understood within CEO Dave Lewis’s strategy of ‘taking a bath’ in his first couple of years in the job –  basically, if he gets all the skeletons out of the closet early on then Tesco will look bad initially, but he will give himself a set of  benchmarks that are relatively easy to surpass in the coming years.”

Tesco has reported the worst results in its history with a record statutory pre-tax loss of £6.4bn for the year to the end of February.

That compares with annual pre-tax profit of £2.26bn a year earlier.

It is the biggest loss suffered by a UK retailer and one of the largest in the country’s corporate history.

Around £4.7bn of the losses were the result of the fall in property value of its UK stores, 43 of which it said would close earlier this month.

The decline in the value of its property portfolio comes as a direct result of declining footfall in many of its out of town superstores.

Tesco chief executive Dave Lewis admitted it had been “a very difficult year for Tesco”.

 

Summary : Tesco has reported the biggest single loss of any UK retailer in history – £6.38bn – more than the £5bn expected.

Drastic Dave Lewis has got a lot of work ahead of him if he is to successfully lay to rest the supermarket’s annus horribilis. He talks here about the “significant” losses and what needs to be done to turn the company around.

But investors are clearly encouraged by what Lewis has said – Tesco’s share price rose this morning – as analysts advised investors to understand the context behind the figures.

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