Assignment On:- Supermarket group reports worst results in its history and UK’s biggest retail loss as the company undergoes the latest shakeup under new boss Dave Lewis
Sarah Butler and Sean Farrell 22nd April 2015
Dave Lewis, Tesco’s chief executive, speaks after the company announced its worst-ever results Tesco has crashed to the biggest loss ever recorded on the UK high street, slumping £6.4bn into the red as a result of huge write-downs on the value of its property portfolio and stock.
Dave Lewis, the chief executive parachuted into mastermind a turnaround last year, described the loss as a “big significant number”. But the former Unilever executive insisted the supermarket was on the road to recovery after a tough 2014 in which it suffered a £263m accounting scandal and the exit of the former chief executive, Philip Clarke, following slumping sales and profits.
“This patient is okay … Our job is to allow it to be healthier. There is nothing critical about its finances,” he said. The far worse than expected loss in the year to 28 February was revealed as the retailer confirmed it had axed nearly 5,000 head office and UK store management jobs as well as more than 4,000 roles overseas and at the group’s banking division. A further 2,500 jobs were lost with the closure of 43 Tesco stores earlier this month.
The £416m cost of those redundancies contributed to a towering £7bn of one-off costs, including £4.7bn relating to the revaluation of properties because of poorer trading and lower profits.
Tesco boss must use ‘honeymoon’ to get results or face shareholder wrath After years of growth in the UK, Tesco suffered five profit warnings last year as analysts said it had opened too many large stores, let prices rise and shop floor standards slip. All supermarkets are under pressure as shoppers switch to the internet, small local shops and discounters such as Aldi and Lidl, but Tesco has been hardest hit as a result of its scale. Lewis, who has never run a
retailer before was brought in to provide a fresh approach.
Soon after his arrival, Lewis uncovered the accounting scandal caused by the over-optimistic recording of payments made to Tesco by suppliers. The scandal has led to several executive departures and investigations by the Serious Fraud Office, the accountancy watchdog and the supermarket regulator. On Wednesday, Tesco said it had found about £60m more in misstatements from previous years, mostly as a result of an audit of its Irish operations.
Lewis said that Tesco had sought to “draw a line under the past” with the massive write-downs and was beginning to see “early encouraging signs” of an upturn. In the three months to 28 February, the volume of items sold in Tesco stores increased for the first time in four years.
“The most important vital sign is that more people are coming in and there are more transactions. That’s pretty good but it’s just the start. There is so much more to do,” Lewis said.
He added customers were returning because Tesco has cut prices, is simplifying its ranges and improving service in stores. While management roles have gone, Lewis has put an additional 4,652 staff on to the shop floor to ensure shelves are well stocked and customers served better.
City analysts welcomed the signs of green shoots. Bruno Monteyne, of Bernstein Research, said: “Dave Lewis has made the right initial steps on the long journey to potentially stabilizing the company and we believe Tesco has a fighting chance of regaining some of its former glories: a fantastic operator chasing cash returns to investors rather than global domination.”
But the annual financial results made clear the scale of the challenge for Lewis. Group sales fell 3% and trading profit, which excludes the impact of one-off costs, dived by 58% to £1.4bn. Trade at established UK stores improved in recent months, but sales still slid 1% in the final quarter compared to 3.6% for the year as a whole.
You are required to:
Having critically evaluated the case study you are required to:
1. Critically evaluate the pattern of actions that TESCO has implemented to return to profit;
2. Critically review TESCO’s approach to ICT and comment on its contribution to its success.