British retail giant Tesco is expected to announce its first year-on-year decline in underlying profits in two decades, as a result of last year’s expensive turnaround plan.
Analysts expect that the group will announce an underlying pre-tax profit of £3.5 billion for the year to February 2013, down 10.7 per cent from £3.92 billion the previous year, at its preliminary results tomorrow.
Tesco makes over 60 per cent of its revenues from its domestic market, however, cutting prices and hiring more store staff has so far failed to offset the impact of the horsemeat scandal, together with tough competition from discount stores such as Aldi and ongoing difficulties with Tesco’s non-food ranges.
Other factors impacting Tesco’s earnings are the Eurozone debt crisis, regulatory issues in South Korea and its loss-making Fresh & Easy business in the US.
While Tesco tries to improve service and reassure shoppers after finding horsemeat in some of its products, it is also experiencing difficult trading conditions overseas.
More than five years ago, Tesco planted its flag firmly on US shores by launching the Fresh & Easy chain. This week, Britain’s largest supermarket owner is set to confirm that it is abandoning the venture, having sunk £1 billion into its doomed transatlantic foray.
Tesco fluffed the US, where its Fresh & Easy chain crashed and burned. Management got the marketing wrong, they got the packaging wrong, and they got the customer experience wrong.
Even before the US hit, profits are expected to have fallen by 10 per cent to £3.4 billion in the year to February. Revenues are thought to have risen 1.6 per cent to £66.2 billion.
Tesco has recently announced a buy-out of the family restaurant chain Giraffe and also holds stakes in Harris + Hoole coffee shops and Euphorium bakeries. Tesco’s boss, Philip Clarke, is expected to outline how these businesses will help add pizzazz to stores covering more than 6,300 sq metres (60,000 sq ft).
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