Analysis: Asda profits exceed £1bn despite drop in sales

As the battle over the UK supermarket wages on, Asda has reported a an overall rise in profits last year, despite experiencing a drop in sales.

The Leeds-headquartered supermarket chain, which is owned by Wal-Mart, saw a 1.9% increase in operating profits to £1.013bn for the year ending Dec. 31 2014, as well as a 2.3% rise in post-tax profits to £780m.

This differs from Asda’s big three rivals, with Tesco, Sainsbury’s and Morrisons all experiencing significant drops in profit last year.

In addition, Asda made this announcement only one day after Tesco reported a 54.6% loss in operating profits in its half yearly financial report for 2015.

All the UK’s ‘Big Four’ supermarkets have been affected by the loss of customers to discount stores such as Aldi and Lidl.

Although there was a rise in profits, Asda did see a 0.4% in revenues to £23.2bn, and sales at stores open over a year also fell by 1%. Furthermore, the supermarket chain’s UK market share dipped 0.1% to 17.1%.

Throughout 2014, Asda opened 17 new stores, which consisted of 11 superstores, five supermarkets and one standalone petrol station site.

However, Asda’s sales continue to drop at an alarming rate in 2015, with the supermarket posting like-for-like sales declines of 3.9%in its first quarter and 4.7% in its second quarter, which was its worst quarterly sales dip in its 50-year history.

Analysis

Asda seeing a decline in sales but small rise in profit has to be seen as a victory off the back of arguably the worst year for the supermarket giants in the UK, especially since none of the other ‘big four’ could achieve this feat.

However, following on from a £300m investment in lower prices during 2014, Asda has seen a substantial decline in sales for this year, culminating in its worst ever quarterly sales decline, which chief executive Andy Clarke called “the worst storm in retail history”.

So has the storm now passed? Well, with Lidl and Aldi continuing to see growth, attract new customers and open more sites, as well as the recent revelation that Amazon is now offering food delivery cheaper than the big chains, there could be more rougher times ahead.