Asda booked a mixed FY as profits grew but sales declined

Asda booked a mixed FY as profits grew but sales declined

Efforts by Asda to reduce costs across the business boosted the UK supermarket retailer's profitability in its last fiscal year, but sales fell as it struggled to compete with the discount chains.

Net profit reached GBP820.1m (US$1.09bn) in the 12 months to the end of December 2015, from GBP780.1m in the prior year, representing an increase of 5.1%. 

Group revenues, however, dropped 3.7% to GBP22.4bn from GBP23.2bn in the year ago period, according to a Companies House filing. Like-for-like sales were down 4.7%, excluding fuel and VAT, and the retailer saw its market share decline by 0.5% to 16.6%, according to Kantar data. 

"The external environment continued to be challenging with slowing wage growth and inflation rises in the last three months of the year," the retailer explained. "Despite this, year-on-year customers had more money in their pockets as a result of a strengthening pound, employment growth, and falls in commodity prices."

Asda says online operations continue to be a key focus for the group, with click and collect expansion having continued throughout the year with new customer collection points added. The launch of its 'to you' parcel service is also expected to enhance Asda's online clothing operation.

The retailer also made reference in its filing to supplier risk, highlighting the "challenging economic environment" currently facing its suppliers. 

It added: "This puts increased importance on the strength of our control processes and our ability to recognise and respond to supplier issues. A periodic review process of supplier risk exists to identify issues, develop appropriate action plans, and improve our controls in relation to supplier monitoring."

Fiona Paton, analyst at Verdict Retail, believes Asda's investment in its 'Project Renewal' scheme – which involves improving its click and collect offering, modernising stores and opening smaller store formats – will be watched carefully to see if the retailer can boost footfall and improve sales performance.

"Positively, its proactivity in terms of reducing costs across the business has boosted its profitability. However most crucial is Asda's plan to regain credibility in its price proposition. With Brexit leaving prospects for UK consumer spending uncertain, Asda will need to act soon if it is to claw back customers from competitors."