British supermarket Asda has warned that required investment in lowering prices and improving product availability and ranges will 'materially reduce' profit this year.
Asda, Britain's third largest food retailer after Tesco and Sainsbury's, lost a whole percentage point of market share to its bigger rivals and discounters Aldi and Lidl last year, according to industry data.
Private equity firm TDR Capital, Asda's majority owner, in November brought back Allan Leighton to be the grocer's executive chairman, more than two decades after he served as CEO and turned the chain around before selling it to Walmart.
Leighton launched major price cuts in January in an attempt to kick start a recovery - reintroducing the 'Rollback' promotion that was first used in the 1990s.
Leighton told reporters on Friday that the aim was to be 5% to 10% cheaper than supermarket rivals, though regaining customers’ trust would take time.
"We will undertake a substantive and well backed programme of investment in price, availability and the shopping experience to deliver this," he said.
"This will materially reduce our profitability this year, which we expect to reverse as our market share recovers and improves over time.”
Rebuilding Asda
Leighton, 71, said rebuilding Asda so it could deliver a decade of growth would take three to five years.
"This is not about a quick fix, this is about a right fix for the long term," he said, adding that he has committed to stay for that time period "if I'm still alive" and was not under pressure to appoint a CEO in the short term.
Asda reported a 5.8% increase in adjusted EBITDA after rent to £1.14 billion ($1.47 billion) in 2024, on flat revenue, excluding fuel, of £21.7 billion. Fourth quarter like-for-like sales fell 4.2%.
Analysts say Asda has been hampered by the cost of servicing debt taken on when Mohsin and Zuber Issa and TDR bought 90% of the group from Walmart, which still holds the remaining 10%, in a £6.8 billion deal in 2021.
Net debt was £3.8 billion at the end of December and interest costs were around £300 million over the year.
However, Leighton said he was 'not overly concerned' about the balance sheet, noting Asda generated £600 million in free cashflow in 2024, has £800 million in cash and £9 billion of assets.
Eleanor Simpson-Gould, senior retail analyst at GlobalData, stated, “Under guidance from Asda veteran Allan Leighton, the grocer is rapidly returning to its roots. [...]
“While food inflation is creeping up again, we do not anticipate this will lead to large-scale switching to discounters, as was seen at the start of the cost-of-living crisis, and Asda is in a prime position to ramp up its renewed price and value-led image.”
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New by Reuters, additional reporting by ESM.
