Asda confirmed its performance last year was shocking after comparable sales and underlying profits plunged (Deirdre Hipwell writes).
In accounts filed at Companies House it revealed like-for-like sales were down by 5.7 per cent in the year to December 31, on top of a decline of 4.7 per cent the year before.
Pre-tax profit fell nearly 20 per cent to £657.2 million while its underlying operating profit, which strips out items such as royalty payments to Walmart, its American owner, also fell by 11.5 per cent from £1.2 billion to just over £1 billion. Despite the dire performance, Asda was cash generative and paid a dividend of £450 million to Walmart.
In a strategic report prefacing the accounts, Alex Russo, chief financial officer, said that the performance was behind market expectations but “in the last quarter of 2016 we saw an improvement following the changes made to our ranges and investment in price and service”.
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Asda has been struggling for some time as footfall fell and it lost customers both to cheap rivals such as Aldi and the “Big Four” grocers, including Tesco, whose turnaround is well on track. Sean Clarke was brought in as chief executive last year, replacing Andy Clarke.
He has been cutting prices, improving the product range and the look of stores while bolstering its online business and keeping a tight rein on costs. Asda’s strategy involves persuading customers who left to come back and to continue to shop there by offering keenly priced quality products.
A market source said that Asda, whose group revenue fell 3.2 per cent to £21.7 billion, was trying to improve service in its stores, increasing staff training and “targeting pricing where it matters”.
There are signs that it is working. In May the US-listed Walmart said in its first quarter earnings that Asda was regaining momentum as it improved its own-brand products and cut prices. Asda’s sales fell 2.8 per cent in the first quarter, less than in previous quarters. It was a marked improvement on the 5.8 per cent and 7.5 per cent slumps in the second and third quarters of last year.