Tesco PLC (LON:TSCO)’s Writedowns To Push The Giant Retailer’s Financials Into the Red

Tesco PLC (LON:TSCO) is expected to end up making a larger writedown than earlier expected on its U.K. retail business. The company is already suffering from nearly 260 million pounds overstatement of profit. The U.K. grocery market is no longer what operators expect it to be as sales have become poor and profits shrinking very fast amid a spike in costs. A number of large supermarket operators in the country have already massive impairment charges.

Although previous estimates called for Tesco PLC (LON:TSCO) to make write downs in the range of 1-2 billion pounds, the ultimate charge could be in the region of 3-4 billion pounds. The higher impairment is linked to the move by Tesco to shutter 43 stores believed to be underperforming. The company also held back some 49 development projects.

U.K. retail market slowdown

Downturn in the U.K. retail market is increasing putting pressure on retail operators, hurting their sales and profits at a time when they have been ambitiously investing to expand capacity. Amid the U.K. grocery market downturn, shoppers appear to favor smaller convenience stores and online buying, which also heaping pressure on large supermarket operators.

However, Tesco has been closed some smaller outlets, which seems to suggest that the problem in the U.K. retail market is widespread, capturing even smaller operators.

Some other retail businesses that have taken massive impairments include Wm Morrison, which took a 1.27 billion pounds charge in March and J Sainsbury, which also recorded a 628 million pounds charge.

Pension deficit

The other challenge facing Tesco PLC (LON:TSCO) is pension deficit, which is expected to have risen to more than 4 billion pounds, according to analysts.

Profit warnings

Tesco PLC (LON:TSCO) issued profit warnings, among other things saying that it overstated its profit by 263 million pounds. The company said its full-year profit would not exceed 1.4 billion pounds.

Edit: Original article incorrectly stated that Tesco PLC was down 6% this year, while Tesco PLC (LON:TSCO) is up 30.63 percent this year.


Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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