The World's 2nd-Biggest Retailer Is Getting Hammered As Profits Collapse 90%

• MIKE BIRD
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Tesco's results are out Thursday for the first half of the year, and a breakdown of the results shows just how badly the company is being hammered. Shares are down by 6.39% well into London's trading day Thursday, adding to the last month's brutal sell-off. 

According to UK Channel 4's Paul Mason, CEO Dave Lewis has been ordered by financial regulators not to explain the massive £250 million ($400 million) profit error that was revealed last month. That suggests that investors could be kept in the dark for months yet, just making the firm's situation worse.

Here are the major takeaways from the results:

• Like-for-like sales are down 4.6%, trading profit is down 41% to £937 million, and revenue is down 4.5%.
• Statutory profit before tax is down 91.9% to just £112 million ($179 million) for a business with revenue 300 times that. Dividends per share have collapsed to just 1.16 pence, a 75% decline.
• Tesco's embarrassing profit overestimation has been revised up to £263 million. That's £118 million in the first half of this year, £70 million ($112 million) for 2013-2014 and £75 million ($120 million) for previous years
• Earnings per share are through the floor. For continuing and discontinued operations, they're down from 10.17 pence to just 0.07 pence, a 99.3% decline.
• Chairman Sir Richard Broadbent is standing down.  Here's his statement:

Once this transition is complete and business plans are in place, it will mark the beginning of a new phase for the company and I will begin now to prepare the ground to ensure an orderly process for my own succession at that time. My decision reflects the important principle of accountability on behalf of the Board and will support the company to draw a line under the past as it enters the next phase of its development.

New CEO Dave Lewis added: "Our business is operating in challenging times. Trading conditions are tough and our underlying profitability is under pressure."

In a note, James Abbott at Accendo Markets says this is "a fall in organic British sales described as the worst performance in 40 years" in the City of London. 

Since September's profit restatement, the share price has plunged and world-famous investor Warren Buffet has said his confidence in the retailer was a "huge mistake."

The share price is now down to £1.83 ($2.93) from £3.71 ($5.94) a year ago, collapsing by more than 50%. What's more, financial analysts over at The Motley Fool think it could go much lower, down to more like £1:

Bloomberg

SEE ALSO:  It's Not Just The Accounts: Absolutely EVERYTHING Is Going Wrong At Tesco Right Now

Read more: http://www.businessinsider.com/tesco-results-profit-collapse-2014-10#ixzz3GyVlLQf4

Wal-Mart And Tesco Won't Be In India Anytime Soon

India has just relaxed a further set of rules governing foreign investment in its retail sector. The world’s biggest retail chains, which were initially eager to do business in populous India, may still not be too excited. The potential size of the market ($850 billion by 2015, according to Deloitte) and the wallet power of younger Indians are enticing aspects but the country’s newly-relaxed yet still-complicated rules are not exactly a welcome mat.

Since opening up the retail sector to 51% foreign investment in 2012, India has not received a single application from global retailers. Despite the modified rules, here are reasons why they won’t be rushing to India anytime soon:

Wal-Mart store / Wikipedia

*The new rules say foreign multi-brand retailers will be allowed to set up shop in cities with less than 1 million population (earlier, stores could be located only in cities with over 1 million population). But foreign retailers will still need regional governments’ permission to open outlets. India has 29 states. Politicians in each of those 29 states will get to decide which cities the foreign retailers can operate in.

*Retailers are required to source 30% of their goods from small local enterprises. The government has given foreign multi-brand retailers five years to work up to this limit. Some foreign retailers such as those selling apparel could meet this condition while others, electronics retailers like Best Buy or Home Depot for instance, will not be able to.

*Foreign retailers are not allowed to do e-commerce. In today’s multi-channel retailing context, e-retailing is a critical component for global retailers.

*Global retailers will have to invest at least 50% of their initially mandated $100 million investment into back-end infrastructure such as cold chains and warehouses within three years. Many multinational retailers would balk at this. Consumer electronics retailers, for example, do not need complicated back-end infrastructure.

*With general elections due in 2014, there is a further air of uncertainty about policy.

India has been travelling a tortured path in liberalizing its retail sector. On the one hand, it needs foreign investment to boost its economy. On the other, the opening up of retail last year to foreign investors prompted widespread protests. In a country where unorganized retail thrives, large-format multinational retailers are seen as a threat to thousands of small mom-and-pop stores.

Retail experts say that the ‘new’ rules are still too restrictive and will not alter anything. “Not too many foreign retailers will be excited about the changes, they will not be beating a path to our door,” said Arvind Singhal of the retail consultancy, Technopak. “The changes are hogwash, scrap the policy and start afresh,” he recommended.

Tesco is Retrenching -- It May Be The New Mandate for Global Companies

Whether it is Walmart or Metro, I have found that many of the global retailers’ expansion plans are irrelevant and hurt the bottom line.  Tesco is a good example.  During his 14-year tenure  (1997-2011), Sir Terry Leahy, the former chief executive of Tesco PLC catapulted the British grocer into the number three position among global retailers.  He succeeded through intensification in the UK market combined with worldwide expansion.  Taking the helm in 2011, Tesco’s new CEO, Philip Clarke, recently announced plans to close all Japanese units, and cease expansion in India, China, and the United States.  Mr. Clarke believes that the economic and competitive climate in some markets, including the UK, has become more challenging and that Tesco should therefore concentrate its resources on ensuring a strong position in its core UK markets. In his view, this provides a better growth opportunity for Tesco.

The US market has proven to be a money loser for Tesco.  In 2007, Tesco opened stores in California, Arizona and Nevada under the Fresh & Easy banner.  Fresh & Easy is a convenience market that concentrates on fresh prepared food and groceries.  It competes directly with Walmart’s Neighborhood Market.  Despite growing to 216 stores generating $960 million in sales, it has not generated a profit.  For 2011, the company reported a loss of $269 million in the US.  I attribute this struggle in part to the fact that many of the Tesco brands are not familiar to the US consumer.   Also, California is an extremely competitive market in food.

When I visited the Fresh & Easy stores I saw wonderful fresh prepared food and produce but that is wiedly available in such a competitive market.   Unfortunately, nothing really stood out at Fresh & Easy to create differentiation.  I believe that having only a few stores in remote places with poor supply lines, coupled with the need to attract a new customer base with no awareness of your brand, is challenging and expensive. The Fresh & Easy operation is proof that customers do not easily change their store preferences.
Tesco is allocating $1.6 Billion to redo stores in the UK. No doubt, Philip Clarke’s renewed strategic focus on strengthening the UK operation stems from the fact that Tesco has lost some market share to ASDA, a subsidiary of Walmart.  In contrast to Tesco’s US approach, Walmart acquired a known UK store brand (ASDA) and then improved its operations leading to market share gains from key competitors like Tesco.   Key elements of Mr. Clarke’s new strategy include:

• growing the core UK market,
• being an outstanding international retailer in stores and on-line,
• being as strong in everything they sell as they are in food,
• growing retail services in all markets,
• placing Tesco’s responsibilities to the communities they serve at the heart of what they do,
• being a creator of highly valued brands,
• building a team that creates more value.

Tesco is clearly focused on enhancing its customer relationship and has engaged dunnhumby to help. The company works with Tesco on a worldwide basis, helping Tesco and its suppliers to put the customer at the heart of every decision and thereby earn her loyalty. The insights help Tesco stock the right products, optimize prices, run the right promotions, and personalize communications across all channels including the Internet.  In addition to Tesco, dunnhumby works with Kroger, Proctor & Gamble, Shell, Coca-Cola, Mars and Macy’s.

Today, Tesco is still in number three position among global retailers. In the last fiscal year the company had revenues of $115 million. The company operated in 14 markets, while Walmart (number 1) operated in 16 countries and Metro (number 5) in 33. 
Carrefour (number 2) is also in 29 countries, although that global company has closed some of their venues and sold stores to other retailers.

I believe that by 1) intensifying its focus on its home markets,  and 2) requiring a profitable contribution from every division,  Tesco is making good strategic decisions that presages profitable growth for the company.  It could also be a guide for the biggest global retailers–that their future growth should be guided by density of population and recognition of the store brands name.

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