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Struggling UK supermarket Asda has warned of a material hit to profits this year as its new boss vowed to reinvest in the chain to attract shoppers back to its stores.
Allan Leighton, who rejoined the business as executive chair in November, gave a blunt assessment of Asda’s annual performance on Friday, promising “a big investment” to turn it around even though it would “materially reduce our profitability this year”.
“Looking ahead we still have plenty of work to get our business firing on all cylinders again,” he said, adding that the hit to profitability should “reverse as our market share recovers and improves over time”.
Asda has been grappling with shrinking sales in an increasingly competitive market as well as availability problems and declining store standards. Its grocery market share fell to 12.6 per cent in February, according to Kantar data, from 14.8 per cent when the £6.8bn takeover by the Issa brothers and private equity firm TDR completed in 2021.
Summarising the group’s performance, Leighton, who helped rescue Asda from the brink in the 1990s, said: “Sales disappointing, profits OK-ish, cash, leverage and balance sheet pretty good.”
“The way I think about this is: it’s an investment warning, not a profit warning.
“We’ve got well-trailed issues: pricing, availability, range architecture — they are the three things we have to fix. We are making progress on all three of those.
“We’re going to . . . invest in driving the business forward rather than [saying] ‘here’s a business that’s just going backwards in terms of profitability’,” he added.
The food retailer, which was acquired in a leveraged buyout in 2020 by the Issas and TDR, recorded a 3.4 per cent drop in like-for-like sales for the year to the end of December.
Total revenue, excluding fuel, was broadly flat at £21.7bn, while adjusted underlying profits, its preferred metric, increased 5.8 per cent to £1.1bn.
The company declined to comment on profit or loss before tax, a metric that provides a clear picture of a company’s finances.
The Financial Times previously reported that Asda made a pre-tax loss of £111.7mn in the nine months to the end of September, according to the most recent documents for Bellis Finco.
Leighton did not say how much Asda was reinvesting into the business, including to bring its prices closer to those offered by other major rivals, but said that it was “a serious strategic move to reset the company for the long term” and “not a piece of tactics”.
Rob Hattrell, a partner at TDR who sits on Asda’s board, said the private equity firm would not need “to put any more equity in”. “We can generate all the investment we need from within the company.”
