Tesco’s record losses – is the only way now up?

Tesco has reported the worst results in its history, with a record pre-tax loss of £6.4bn for the year to the end of February. That compares with an 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 are the result of the fall in property value of Tesco’s UK stores, 43 of which the company said would close earlier this month.

Investors are thinking the worst is behind them and good news will follow. Naeem Islam, AvaTrade

The Tesco share price rose by as much as 2.5 per cent on the news, reflecting the fact that today’s bad numbers had been expected, although it subsequently dropped back.

Investors are also hoping that bad news that has dogged the retail giant in recent years is finally at an end.

“The stock is up as investors are thinking that the worst is behind them and good news will follow from here now,” said Naeem Islam, chief market analyst at AvaTrade.

‘Difficult year’

Chief Executive Dave Lewis, who replaced Philip Clarke in September, sought to draw a line under the company’s recent troubles by taking £7bn worth of write-downs.

In a statement, he said: “It has been a very difficult year for Tesco. The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years.

“We have faced into this reality, sought to draw a line under the past and begun to rebuild, and already we are beginning to see early encouraging signs from what we’ve done so far.”

Right man for the job

Jonathan De Mello, head of retail consultancy at retail property advisers Harper Dennis Hobbs, told Channel 4 News he thought the today’s figures were as bad as they look, but that Tesco was trying to “release the bad news in one go”.

“Property write-downs have accounted for the majority of the loss,” he said. “They’ve got the bad news out. They can now show positive news going forward.

“But Tesco will recover – Dave Lewis is the right man for the job.”

Read more: what has gone wrong with Tesco?

Identity crisis

Tesco has also faced a crisis of identity in recent years as it seeks to appeal to more affluent consumers while fending off competition from value-orientated grocers.

“People are starting to wonder: what does the brand stand for?” Fraser McKevitt, of Kantar Worldpanel, told Channel 4 News last year (see video above).

They’ve got the bad news out. They can now show positive news going forward. Jonathan De Mello, Harper Dennis Hobbs

“It’s not necessarily perceived to be the cheapest, but it’s not necessarily perceived to be the highest quality.”

Jonathan De Mello agrees: “Aldi and Lidl have undoubtedly shaken up the market, threatening Tesco and Morrison’s more than Sainsbury’s. And Sainsbury’s are bringing Netto back into the UK.

“Tesco don’t have that – they can’t go out and buy a discounter.”

Succession of setbacks

Tesco, which ousted Sainsbury’s as Britain’s biggest food retailer in 1995, has suffered a succession of setbacks since the departure of Sir Terry Leahy as chief executive in 2011.

Under Phil Clarke, Sir Terry’s replacement, it sold its Fresh & Easy US business in 2013. In the same year, the company revealed its first drop in annual profits in 20 years as it continued to lose market share to discounters Aldi and Lidl.

The grocer was hit by scandal last September – weeks after Dave Lewis had taken over as CEO – when it emerged it had inflated expected half-year profits by £250m.

At the time, Robert Talbut of Royal London Asset Management told Channel 4 News the way the company dealt with this would be very important in trying to regain the trust of shareholders in its ability to start to move forward.

In February the Groceries Code Adjudicator announced it had launched an official investigation into Tesco supplier practices related with the first-half profit overstatement.