Tesco Focus Turns To UK After US Exit
The UK's largest retailer and the world's third biggest with annual sales in excess of GBP60bn, Tesco , has been under pressure from shareholders to address structural shortcomings that were exposed b y the landmark profit warning it announced in January 2012 . Tesco's business in the UK, which accounts for about two thirds of sales, was under pressure as rivals such as Sainsbury's grew market share while Tesco left itself open to criticism that it had taken its eye of the ball in the UK by arguably neglecting existing stores by focusing too heavily on new stores. Some of its rivals were offering a better in-store experience and British shoppers voted with their feet. If that was not enough, Tesco's notorious loss-making US business became an even greater bone of contention as problems at home added pressure on Tesco's bosses to cut their losses in the US.
Under the leadership of its previous CEO Sir T erry Leahy , who was in charge between 1997-2011, Tesco was bold and free spending. It was at the forefront of the retail race in the UK where the main players spent heavily on new stores across Britain's high streets and into its suburban areas. The strategy was largely successful and the success in the UK was the springboard from which Tesco was able to develop a strong presence internationally . B etween 2002 and 2012 , net income increased from GBP800mn to GBP2.8bn according to the Financial Times . Over this same period the proportional contribution of the UK to yearl y revenue s dropped from about 85% to 65%, which was fundamentally a good thing as companies such as Tesco and Walmart looked for greater growth abroad, particularly in emerging markets wher e re tail was often an open field.
The game has changed. Tesco has just reported pre-tax profit for the year to February 2013 that was down 96% year-on-year (y-o-y) to £1.96bn. Write-downs to the tune of more than £2bn , largely from the botched US business Fresh & Easy , are largely responsible , although even stripping out the write-downs could not ' rose tint ' what was an incredibly challenging year . Tesco's underlying profit before the write-down charges was down 14% y-o-y to GBP3.55bn. With Tesco's profits in the UK declining, it is clear that this has to be its core focus.
|All Down. Tesco Spending Less On Capital Expenditure|
|Tesco Daily Share Price (GBp) (LHS), Return On Assets (%) & Capital Expenditure To Sales (%) (Both RHS)|