Tesco Asia sales fall after restructuring

Tesco Asia like-for-like sales fell 6.2 per cent last year, but the decline eased to 3 per cent in the fourth quarter as restructuring of the Thai business took effect.

UK-headquartered grocery retailer Tesco Group included the results of its Tesco Asia operations in its annual results filing released yesterday.

Tesco Asia’s operating profit for the year was £286 million (US$374.9 million), down 4.3 per cent. But the company commented that supplier negotiations have concluded and the significant restructuring is now complete, paving the way for improved results in the year ahead.

“In the first half, profit was impacted by the combined effect of sales deleverage, price investment and repositioning of promotional investment in Thailand,” the company said. “Performance improved significantly during the second half as we successfully concluded renegotiations with our suppliers and accelerated plans to restructure our store and office operations in Thailand. As a result, we have been able to recover our operating margin more fully and quickly than we had anticipated at the half-year stage.”

Total sales in Asia – where it operates Tesco Lotus in Thailand and Tesco hypermarkets in Malaysia, were down 1.6 per cent, after excluding sales taxes and fuel. The company achieved £4.055 billion in sales in Thailand and £818 million in Malaysia.

Tesco Asia opened two stores in Malaysia and 70 in Thailand during the year. It closed one in Malaysia and 56 in Thailand, leaving a net total of 73 and 1965 respectively, which accounts for almost a third of Tesco Group’s global network of 6270 stores.

Globally, Tesco Group achieved a 28.8 per cent increase in pre-tax profit to £1.67 billion, which GlobalData retail analyst Thomas Brereton said was evidence of the success of CEO David Lewis’ turnaround plan, now four years in.

‘‘Tesco’s strong full-year announcement today produced a flurry of appealing results,” said Brereton.

“Shareholders … should be feeling extremely confident that Tesco will be one of the better-performing supermarkets for the rest of this year.”

He said Lewis has lived up to his nickname of ‘Drastic Dave’ at Tesco, “mercilessly streamlining the business over the past four years, ditching divisions that obstruct the group from reaching the promised operating margin level”.

But Brereton said Lewis now faced a challenge of what to do next, having almost achieved every single five-year target set four years ago when he took control of the then-struggling business.

“Tesco now needs to set itself some new objectives.”