Yahoo Finance Good News For Tesco Behind Ugly Headlines
£6.376bn. It's a huge figure and a thumping loss - the sixth largest in UK corporate history. Not a record that Tesco (Xetra: 852647 - news) or its new chief executive, Dave Lewis, will have sought.
The loss is due to two factors. The first is a big drop in underlying profits across the business, specifically in the core UK operation, where trading profits were down by a hefty 79%.
The second is a ghastly set of one-off factors totalling £7bn.
These include writing some £4.7m from the sum at which Tesco's properties and other assets are valued in the books; some £416m in restructuring charges; a whacking £630m write-down in the value of Tesco's business in China; and some £116m from the worth of the Dobbie's garden centre business for which Tesco paid £156m seven years ago.
Oh, and Tesco has also said that the stock in its warehouses is worth £570m less than it was valued in the books.
In City parlance, this is a kitchen-sink job, in which every bad bit of news available, everything including the kitchen sink, is chucked in to make the numbers look as bad as possible.
Cynics suggest this is done to make the subsequent turnaround look all the more impressive.
Unsurprisingly, Mr Lewis refutes this, but is not shying away from the fact this is an ugly number.
Nor is he hiding from the fact this year's numbers will also be bad, as shown by Tesco giving no guidance on when it expects to resume paying dividends.
Yet dig into the numbers and some encouraging things emerge.
One is that, for the first time in four years, UK sales volumes are rising on a like-for-like basis.
In other words, in stores trading for more than a year in the same format and not benefitting from refurbishments or expansions in floor space, Tesco is selling more stuff.
Unfortunately, because prices are still falling, that has not yet translated into an actual rise in sales.
However, it is a welcome development, as is the fact that, for the first time in two years, the number of transactions in stores is also up.
Looking at total sales, on a like-for-like basis, things are also improving.
UK sales during the most recent quarter were down just 1%, compared with a drop of 4.2% in the previous quarter and one of 5.4% in the quarter before that.
In other words, Mr Lewis and his team appear to have staunched the way in which Tesco was haemorrhaging sales.
Other bits of good news include the fact no more accounting horrors have been uncovered and that the pension deficit is no worse than the City's legions of Tesco watchers had feared.
So, while the headline loss looks bad, there are signs that things are improving.
It will be encouraging for Mr Lewis as he concentrates on fixing this vital British business.
