By Peter Evans
LONDON--Tesco PLC on Wednesday wrote down the value of its
European business by GBP734 million ($1.23 billion) and reported
its second consecutive fall in full-year profit, as it struggles to
compete with fierce competition at home and abroad.
Tesco said falling profits and a slow economic recovery in its
European markets led to a huge fall in the value of its assets,
especially in Turkey and Central Europe.
The European write down is the latest international setback for
a U.K. company that once hoped to dominate global retail.
The charge brings Tesco's losses from underperforming
international operations to more than $3.7 billion in the last 18
months. The company also flagged a $904 million charge related to
its Chinese operations, which it moved earlier this year into a
joint venture with a local retailer. In 2012 Tesco said it would
exit its unprofitable U.S. venture, Fresh & Easy, after five
years at a cost of $1.6 billion.
But Chief Executive Philip Clarke defended the rapid
international expansion under his predecessor Terry Leahy--which
saw Tesco move into Japan, Thailand and Malaysia as well as the
U.S. and China--was a mistake.
"Those decisions, which I was a party to, were at a different
time in the evolution of the world retail market," said Mr. Clarke,
who was responsible for international operations before becoming
CEO.
Mr. Leahy is credited with building Tesco into a global
powerhouse on the level of Wal-Mart Stores Inc. and Carrefour SA,
expanding its international footprint from five countries to
13.
Tesco's international markets are only part of its problem. The
retailer on Wednesday reported its second consecutive fall in
full-year profit as an ambitious turnaround plan in the U.K.--by
far its biggest market--failed to gain traction.
For the year to Feb. 22, Tesco's trading profit--which excludes
property gains or losses--fell to GBP3.31 billion ($5.54 billion)
from GBP3.45 billion a year earlier. The profit figure slightly
topped analyst expectations, sending the shares up in early London
trading. Sales were largely flat at GBP70.89 billion.
"Tesco is in a cycle of what seems to be structural decline
involving a sustained period of downgrades to earnings," said Clive
Black, an analyst at brokerage Shore Capital, who has covered Tesco
for 20 years.
Tesco's tough times reflect a wider shift in the U.K. grocery
sector, brought on by the rise of international discount chains
Aldi Stores Ltd. and Lidl UK GmbH. They are forcing Tesco and the
country's other big supermarket chains to reduce prices in a fight
to retain customers.
Mr. Clarke earlier this year said the company would invest
GBP200 million a year in price cuts on everyday items including
bread and milk. He said Wednesday "that was just the start,"
signaling Tesco's intention to compete with the discounters.
With the British supermarket chain's market share and stock
price languishing at near-decade lows, Mr. Clarke's future has been
questioned by some investors and analysts, especially following the
resignation earlier this month of Chief Financial Officer Laurie
McIlwee .
But the CEO said he was committed to reviving Tesco's fortunes.
"I've got no intention of going anywhere," said Mr. Clarke. "I'm
going to see this thing through."
Tesco reported a net profit for 2013 of GBP970 million, up from
GBP28 million in the prior year, which was hit by a number of write
downs. The company maintained its final dividend of 10.13 pence a
share, bringing its total dividend to 14.76 pence a share.
Write to Peter Evans at peter.evans@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires