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Retail

Profit At UK Supermarket Asda Slumps On Inflation Hit

By Reuters
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Profit At UK Supermarket Asda Slumps On Inflation Hit

British supermarket group Asda reported a 24% fall in annual earnings after it decided not to pass the full impact of cost inflation onto consumers, taking a hit to profits instead.

Asda, owned by brothers Zuber and Mohsin Issa and private equity firm TDR Capital, said core earnings, or adjusted EBITDA, were £886 million (€1 billion) in 2022, down from £1.17 billion (€1.3 billion) in 2021, on flat sales of £20.45 billion (€22.7 billion).

'Conscious Decision'

"We took a conscious decision to support customers by investing heavily to mitigate the impact of inflation and keep prices as low as possible," said Mohsin Issa.

"Although this contributed to a decline in profitability, it was the right thing to do for our customers and will ultimately help to deliver long-term growth," he said.

Double-Digit Inflation

British households have been battling double-digit inflation since September and the government's official budget forecaster said earlier this month that the country remained on track for a record fall in living standards over the two years to March 2024. Grocery inflation in March hit a record high of 17.5%, according to market researcher Kantar.

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The Bank of England raised interest rates last week by another quarter of a percentage point, adding to the strain on budgets for many households.

'Positive Momentum'

Asda, Britain's third largest grocer after market leader Tesco and Sainsbury's, said like-for-like sales in the fourth quarter of 2022 rose 5.4%, accelerating from 4.7% in the previous quarter.

It said this positive momentum has continued into 2023, with like-for-like sales growth of 6.8% in February.

Long Term Goal

The group said it was making progress towards achieving its long-term goal of becoming the number two supermarket in UK grocery.

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The Issa brothers and TDR also own petrol forecourt business EG Group.

In January, the Times reported that the Issas and TDR were exploring a merger of EG and Asda. All parties declined to comment on the report.

Analyst Comment

Commenting on the retailer's performance Joe Dawson, retail analyst at GlobalData, said, “Asda’s second year under new management has been more positive, rectifying a weak performance in FY2021, albeit against tough comparatives, as it reported a 0.1% rise in total sales excluding fuel in FY2022.

"The sales declines it saw in H1 were left behind as Asda reported strong sales growth in Q3 and Q4 of 4.9% and 5.5% respectively, largely driven by high food price inflation in the UK. However, it has been unable to keep pace with the total food & grocery market, which GlobalData forecasts to have grown by 1.8% in 2022.

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"Although Asda cemented itself as the third largest grocer in the UK in terms of market share in 2022, Aldi is hot on its heels, having recorded sales growth of 26% in December 2022. Lidl also reported an impressive 25% increase in sales over the festive period, highlighting the ongoing challenge for traditional supermarkets to keep their products affordable and of high quality to stave off the discounters."

News by Reuters, edited by ESM – your source for the latest retail news. Click subscribe to sign up to ESM: European Supermarket Magazine.

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