Historic Tesco loss sparks share price slump: Dave Lewis has to move from “drastic” to “dynamic”

Britain’s biggest supermarket made a statutory pre-tax loss of £6.4bn for the year to 28 February after writing down the business by £7bn  – most of which was due to a £4.7bn writedown in the value of its stores and the 49 schemes that it no longer plans to build. 

 

The loss was also made worse by a  near 60 per cent fall in trading profits to £1.4bn and Lewis warned that it may struggle to hit even that level this year as it battles to win back shoppers by investing back into the business with further price cuts and store improvements. 

 

The shares dropped by five per cent to 222.65p last night – the lowest since the start of the year but still above December’s 11-year low of 170p when Tesco issued a profit warning. Its performance depressed the entire stock market.

 

 

Lewis, who was parachuted into the business seven months ago, has lived up to his Drastic Dave nickname with measures to reverse hemorrhaging UK sales and draw a line under a disastrous year for the group, that culminated in last October’s accounting scandal when it overstated profits.

 

Despite the huge loss, Lewis insisted that there were encouraging signs of a turnaround, with UK like-for-like sales in its home market down 1.2 per cent in the fourth quarter, from a fall of 4.4 per cent in the previous three months.

 

“More people are coming into our stores and buying more things in Tesco than they have in the last four years. That’s a pretty good vital sign. It’s a start and we have so much more to do but that’s good,” he said.

 

The group said it has also seen an improvement in sales at its larger stores, which Lewis said proved that they were “not quite the dinosaurs people have painted them to be”. 

 

Lewis also raised the group’s annual cost savings target by £150m to £400m  and said it will  contribute £270m to its pension deficit, which was better than analysts feared. It was £3.9m at the end of the year compared with £2.6bn the previous year.

 

Tesco has moved to cut costs by selling off assets such as Blinkbox, closing 43 stores and shutting its Cheshunt headquarters. 

 

 The closures have resulted in thousands of job losses but Lewis insisted the net number of people working for Tesco had risen after it recruited more staff to work in remaining shops, to improve its service. 

 

He said the sale or partial sale of its data arm Dunnhumby was on track but did not give details of any  further disposals or whether it would resort to a rights issue to cut its total £22bn debt-pile.

 

DAVE’S TO DO LIST

Close 43 stores

Scrap plans for 49

Close expensive head office

Sell corporate jets

Cut debt

Find a buyer for HQ and other assets

Evaluate rights issue

Improve UK sales performance

Stay competitive against Aldi and Lidl

Regain trust of customers and investors

 

 

Here, charted, is the decline of a giant.