Additionally, Tesco reported its net profit in the fiscal year ended February 28, 2009 rose to £2.16 billion (British pounds) ($3.15 billion U.S.) from £2.12 billion a year earlier.
The UK-based global retailer also said today it's new fiscal year, which began on March 1, is looking good thus far, reporting that sales are up 9.2% in the first six weeks. (See the links at the end of this piece for Tesco's detailed reporting.)
Below is what Tesco CEO Terry Leahy said about Tesco PLC's full-year sales and profit performance today:
"At a time when customers everywhere are feeling the economic strain, we are responding to their changing needs in all our markets by lowering prices, introducing more affordable products and offering even sharper promotions. These actions, combined with our core strengths - in selling food and everyday essentials, owning our own property and having a broad business base - are helping us to cope well with the effects of the downturn. We are also pleased with the early performance of Tesco Personal Finance under our ownership and with the converted Homever stores in Korea.
As a result, we have delivered a solid sales and profit performance, both in the UK and internationally, whilst continuing to invest in our long-term strategy for growth. We have made a good start to the new financial year and I am confident Tesco will continue to make good progress even in the current global economic environment."
Tesco reports £142 million loss for Fresh & Easy USA
But despite its excellent overall performance in the UK and globally, Tesco reported a higher than hoped for £142 million (British pounds) -- $208.05 million U.S. at actual exchange rates -- full-year loss for its El Segundo, California-headquartered Fresh & Easy Neighborhood Market small-format (10,000 -to- 13,000 square foot) grocery and fresh foods chain, which currently has 118 stores located in California (Southern and Bakersfield), southern Nevada and Metropolitan Phoenix, Arizona. There were 115 Fresh & Easy stortes open at fiscal year-end on February 28, 2009.
The £142 million ($208.05 million U.S.) loss widened from £62 million ($91 million U.S.) a year ago, according to Tesco.
In this story published yesterday [April 20, 2009: Tesco to Report Full-Year Financials Tomorrow; We Estimate £110-£150 Million Full-Year Loss For Fresh & Easy Neighborhood Market USA] Fresh & Easy Buzz estimated Tesco would report a loss today for Fresh & Easy of between £110 -to- £150 million (British pounds). The loss reported today was £142 million (British pounds) -- $208.05 million U.S. -- which is at the upper-range end of our estimate.
Below is what Tesco said today about its full-year Fresh & Easy Neighborhood Market financial performance:
"A segmental report on the United States is included in International in respect of the full year for the first time with these results. US sales and initial trading losses were previously reported within the UK segment. US sales were £208m in the year, including like-for-like growth of 30%, and trading losses were £142m (last year US trading losses were £62m). At constant exchange rates, trading losses were £123m, higher than our guidance provided last year, reflecting the more challenging trading environment in the Western states and our decision not to open stores in Northern California for the time being. Sales overall were lower than anticipated at the time of last year's Preliminary Results, as a consequence of our previously announced decision to maintain, rather than accelerate our rate of new store expansion during the second half given the severity of the economic downturn in some geographic markets in the Western US.
US trading losses reflect the fact that the US business - which has now been trading for 16 months - has been built with the necessary infrastructure in place from the beginning to support hundreds of stores. At this stage, it is therefore operating with high overhead and other costs in relation to the scale of the business, whilst also trading from immature stores."
[See our story here[Tesco to Report Full-Year Financials Tomorrow; We Estimate £110-£150 Million Full-Year Loss For Fresh & Easy Neighborhood Market USA] from yesterday in which we offered (the comments in italics in the piece) a few suggestions as to what Tesco would say publicly today in reporting the loss for Fresh & Easy.]
Fresh & Easy: full-year sales, loss
Fresh & Easy's £142 million (British pounds) -- $208.05 million U.S. -- full-year loss was on reported annual sales of £208 million ($305.04 million U.S.). In other words, Tesco Fresh & Easy's full-year sales of $305.4 million (U.S.) only exceded its full-year operating loss by $97 million (U.S.).
That's a sales-to-profit ratio that paints a rather grim 52-week performance record for Fresh & Easy Neighborhood Market USA.
Tesco did report that same store sales for the 115 Fresh & Easy markets opened at the end of the fiscal year rose by 30% over a year ago. That's a big positive for the grocery and fresh foods chain since as we've previously reported, one of Fresh & Easy's problems has been the fact that many of its existing stores are underperforming. However, there's no way to tell how many of the 115 stores contributed to the 30% same stores sales gain -- it could be the 50 best performing of the 115 stores, for example -- but any increase in same store sales is positive news for Fresh & Easy. It doesn't deal with the underperforming store issue though.
Tesco didn't report any additional data for Fresh & Easy, such as gross margin information, as we said in our piece yesterday would be the case, and as you can see in the chart here (scroll down to the "United States Results" headline at the link. In fact, it includes gross margin as a line item in the graph but puts not available (n/a) under the line item.
Tesco has hoped to reach break even with Fresh & Easy at the end of the current 2009-2010 fiscal year, which began on March 1, 2009. The odds of achieving that target are slim to none, in our analysis.
But Tesco PLC CEO Terry Leahy said today in the conference call announcing the retailer's full-year profit results that in such a severe economic recession "it's pointless" predicting when Fresh & Easy will break even.
"The danger is that in order to rush to break even you'd slow your ability to target long-term expansion," he added in today's conference call.
However, since food and grocery retailing has been one of the few sectors doing well to fairly well in the U.S. in the current recession, and retailers offering a discount format model like Tesco says Fresh & Easy is are doing the best in the sector, we find Tesco's putting the primary if not entire focus of the problems with Fresh & Easy on the economic recession very hard to buy, as we've said previously.
Without a doubt the economic recession is hurting retailers of all types, including grocers. But the fact is that food and grocery retailers like Wal-Mart, Aldi USA and Supervalu, Inc.'s Sav-A-Lot, all discount-oriented sellers of groceries, are doing well in the recession, as shoppers are moving to grocers that offer the most real and perceived value in the economic downturn.
Tesco touts Fresh & Easy as offering food and grocery items at up to 15% cheaper everyday than its competitors in California, Nevada and Arizona. Additionally, the grocer regularly distributes $5-off (purchases of $20 or more) and $6-off (purchases of $30 or more) deep discount store coupons (although it has cut back on these coupons dramatically since February of this year), and beginning in late February has been offering numerous loss-leader, deep-discount priced food and grocery items in its advertising fliers, which it changed to a weekly ad circular in February, from its previous once-every-three-weeks duration.
Therefore, based on this food retailing model -- low everyday prices and super hot promotional prices and the discount coupons -- wouldn't it seem that shoppers struggling with cash in the recession would beat a path to any grocery store that offers such value?
Logic and economics suggests they would.
But they aren't flocking to Fresh & Easy, nor were they before the real effects of the recession were felt in about March 2008. The current recession officially started in December 2007. But until about March 2008 consumer spending was at its previous December 2007 levels. And the full effect of the recession didn't really start being felt until the summer of 2008.
But Tesco PLC CEO and Tesco Fresh & Easy USA CEO Tim Mason have been attributing nearly all of Fresh & Easy's problems to the recession. We certainly think the recession is a contributor -- the Fresh & Easy's problems, and therefore a major contributor to its loss, are much broader than the macro economic influence of the current economic recession.
Stay tuned to Fresh & Easy Buzz for upcoming analysis on Tesco's full-year financial report today, with a particular focus on Fresh & Easy Neigborhood Market USA.
Below are links to Tesco's full reporting:
REG-Tesco PLC Final Results - Part 1
REG-Tesco PLC Final Results - Part 2
REG-Tesco PLC Final Results - Part 3
REG-Tesco PLC Final Results - Part 4
>Additional information, including a video interview with Tesco PLC CEO Terry Leahy, is available on the Tesco PLC corporate Web site here.
[You can follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]
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