London Briefing: Tesco returns to the black after gloomy year

A year ago, Tesco posted one of the biggest corporate losses ever seen in Britain, a massive £6.4 billion plunge into the red.

The record loss for the UK’s biggest retailer was the culmination of a disastrous year of tumbling sales, profit warnings, accounting scandals and boardroom upheaval.

There will be better news on Wednesday from chief executive Dave Lewis as his turnaround plan starts to bear fruit. Helped by a better than expected performance over Christmas, Tesco is set to report its first increase in quarterly sales in the UK in more than three years.

Profits for the year are likely to come in at about £450 million – a huge turnaround on the £6.4 billion loss of the previous year, which included massive writedowns of the group’s sprawling property portfolio.

But it is still only a fraction of the £4 billion the supermarket group was earning just a few years ago. Excluding exceptional items, profits are forecast to come in at something more than £900 million, according to analysts.

Lewis has been in the Tesco hot-seat for about 18 months and, from the start, stressed that the group, once regarded as a money-making machine, must concentrate on reviving its core UK supermarkets chain.

There have been a number of divestments of businesses now seen as non-core, including the sale last autumn of its operations in South Korea, bringing in a much-needed £4 billion.

One of the first sales announced by Lewis after taking over as chief executive was that of Blinkbox, bought by his predecessor Phil Clarke in 2011 in an ill-fated attempt to take on Amazon, Netflix and Sky in the film and music-streaming market.

Further unravelling of numerous ill-advised diversification moves made by previous management continues. Last month, Tesco said it would close its healthy living business, Nutricentre, after losses spiralled. Just two years ago, Tesco boasted of plans to open hundreds of Nutricentre outlets and concessions.

Other business now on the auction block include the restaurant chain Giraffe, the coffee shop chain Harris & Hoole, the bakery chain Euphorium and the Dobbies garden centre business. Dobbies, which has a chain of 35 garden centres, became part of the Tesco empire back in the heady days of 2007, when Sir Terry Leahy was in charge. Bought for £156 million, last year it racked up losses of almost £50 million.

All of this is small beer when measured against Tesco’s global sales of some £55 billion, or the huge figures produced by the UK supermarket business, which, despite its underperformance in recent years, remains by far Britain’s biggest grocery chain.

But loss-making businesses, however small, tend to take up a disproportionate amount of management time, and the City certainly approves of Lewis’s disposal strategy.

On Tuesday, on the eve of its results announcement, Tesco had news of another sale – the £90 million disposal of part of its stake in a Singapore-based online retailer, Lazada. Tesco only bought into the business in 2013, during Clarke’s reign, but is now selling its shares to the mighty Chinese retailer, Alibaba.

There was also a cheeky move on the price war front, as Tesco's new head of UK retail, former Pets at Home boss Matt Davies, announced that Tesco would accept rival Sainsbury's Brand Match money off vouchers in its stores until the end of June.

Sainsbury’s called time on the scheme last week and the last vouchers – which compare prices with Asda and offer a refund if the items could have been bought more cheaply there – will be given out at the end of this month.

Announcing the move, Davies pointed out that Tesco shoppers don’t have to fiddle about with vouchers but are given an immediate price match at the tills. “This is a little help for Sainsbury’s customers from us as Tesco,” he said.

Moves made by Lewis and Davies on price look to have been working and Tesco should be able to boast on Wednesday that it is at last winning customers back to its UK stores after several years of falling sales.

It’s not all good news though. Like other retailers, Tesco’s costs will come under pressure as a result of the National Living Wage, and Aldi and Lidl are still growing their market shares, not to mention the Serious Fraud Office’s ongoing investigation into the accounting scandal.

Still, some quarterly sales growth and a return to the black are a step in the right direction.

Fiona Walsh is business editor of theguardian.com