Clearly, Warren Buffett doesn’t believe in Tesco’s turnaround story.
About a month prior to British retailer Tesco’s biggest posted loss in United Kingdom corporate history, Warren Buffett sold off the majority of his stake in the company.
On Wednesday, Tesco said that it experienced an annual loss of £6.4 billion – or $9.6 billion – after the company saw shoppers disappear after a series of missteps. Compare this result to a loss of £2.3 billion – or $3.4 billion – during the prior year.
Last year, the stock price had fallen by nearly 50%, but in 2015 it has rebounded somewhat because investors believe that the company will recover under new management. Buffett obviously isn’t one of those investors, and shares are still off by 20% year to year.
In March 2015, Berkshire Hathaway – Buffett’s investment company – cut its Tesco stake by 75% according to Factset data, but it wasn’t soon enough to avoid a $678 million loss on its holding last year. And the shocking results posted by Tesco are the results of more than $10 billion worth of write-downs because of the heavy drop in the real estate property values, plus the store closure cost that the United Kingdom’s largest supermarket group has faced. Another drag on profits was hefty pension liabilities, and many low-priced chains have also hurt the company. Couple that with the accounting scandal that certainly hurt the business as well.
“The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years,” said Dave Lewis, CEO, in a statement.
The group is also experiencing trouble overseas. Tesco has struggled in China and during the past year, its joint venture with a state-owned company helped them experience another loss. In 2012, the United Kingdom retailer also pulled out of the US in a failed attempt to penetrate the market.
In London trading, Tesco shares were flat on Wednesday.