Despite Tesco’s historic £6.38bn loss, there are green shoots on brand perception

Tesco has plunged to a £6.38bn pre-tax profit loss, the worst in its 96-year history and the sixth-biggest ever announced by a UK company, for the year to the end of February as it paid the price for a major writedown of its store portfolio.

However, despite the historically bad numbers, brand tracking data has shown some evidence of a turnaround, with volume sales also up at Tesco over the fourth quarter.

“We have sought to draw a line under the past and begun to rebuild, and already we are beginning to see early encouraging signs from what we’ve done so far,” said chief executive Dave Lewis in a company video.

“Over the last six months by focusing on the fundamentals of availability, service and targeted price reductions, we have seen a steady increase in footfall, transactions and, most significantly, volumes. More customers are buying more things at Tesco.”

Although annual group trading profit was down 60% to £1.4bn, the fall compares favourably to the £3.3bn loss the previous year.

And while Tesco suffered a 3.6% fall in like-for-like sales for the year, there were signs of improvement in the fourth quarter, with like-for-like sales volumes up for first time in over four years. Tesco said that this was driven by better availability, service and pricing, with like-for-like sales performance improving to (1.0)% in Q4.

Lewis’ reference to a turnaround ‘over the last six months’ also appear to have some truth in it, with Tesco dramatically improving its brand rating over that period.

Over the period, Tesco, which is 7th out of the UK’s 26 biggest supermarket brands, has significantly increased its YouGov Brandindex index score by 6.8 percentage points to 16.9. The index score is measured by looking at consumer perception of quality, value, reputation and satisfaction.

And although it remains bottom of the 26 retailers on the YouGov BrandIndex buzz rankings, which measures the amount of positive things consumers have heard about a brand, its score of -7.5 has shot drastically up by 16.2 percentage points over the last six months.

But with around £4.7bn of the losses the result of a fall in property value, Lewis today admitted that it been ‘a very difficult year’ for the UK’s biggest supermarket and said that moving forward it will rebuild the brand by ‘restabilising trust and putting the customer at the centre of everything we do.”

The £6.38bn loss included a £570m write down on stock, which is linked to how Tesco was recording income from suppliers, and over £400m in restructuring costs linked with thousands of head office redundancies and shop closures.

In his first few months at the head of Tesco, Lewis has made some dramatic decisions including closing 43 stores and pulling out of 49 planned developments as well as cutting thousands of head office positions.

John Ibbotson of Retail Vision, praised the changes heralded in by Lewis despite today’s dire numbers.

“This is the official end of the Tesco era,” said Ibbotson, “ but the irony is that Tesco is on the right path. Lewis has delivered direction, reduced prices, cut costs, closed the Cheshunt head office and put more staff into stores.

But there’s a long way to go yet before the agile new Tesco that is emerging becomes a profitable Tesco and brand once again. And even when it does recover, it will never again be the force it once was.”