Anyone who was expecting his week’s preliminary results from Tesco to throw clear light on the future of its Dobbies business will have been disappointed…or, at the very least, confused.
Enmeshed in the news of Tesco’s record-breaking £6.4 billion group loss were two mentions of Dobbies – one a set of figures showing that the garden centre division’s footprint was forecast to increase by 30,000 sq.ft in the current year, the other reporting an £83 million write-down (in goodwill and other impairments) on the value of the 35-centre group.
The footprint forecast was taken in some quarters to indicate that Tesco was hanging on to Dobbies, despite recent speculation that it was negotiating a sell-off to Wyevale Garden Centres. Surely, they argued, you don’t add floor space when you are gearing up for disposal. However, a mere 30k sq.ft is a drop in the ocean in retail space terms and may be covered by work in progress – even, possibly, ‘window dressing’ in preparation for a sale.
If Tesco believes there is still plenty of wind left in Dobbies sails, 30k sq.ft could mean a number of new Dobbies-branded coffee shops in Tesco stores, like the one recently opened in Dundee (pictured above). Garden centre catering is a big success story currently and as Tesco has admitted its supermarkets have too much floor space, a re-purposing strategy of this kind could stack up. Rival Sainsbury has said it is to explore sub-letting opportunities for its surplus capacity, so the concept may take off in the sector.
The real enigma, though, is what lies behind that write-down figure of £83 million. According to the results announcement, this (plus another £33 million in impairments in other UK divisions) is due to ‘the challenging economic climate and significant shifts in the retail industry structure’, resulting in revised forecast cash flows and updated discount rates. In other words, Dobbies may not be doing as well as expected in the current climate, so the company is obliged to reflect this in its valuations.
Dobbies profits dipped from £7.3 million to £6.7 million in the 12 months to February 23 last year, while turnover increased from £137.4 million to £142 million. A continued drop in profitability in the past 12 months would partly account for the latest write-down.
Yet the industry will be doubly puzzled by this. For the major part of the garden centre industry, 2014 was a decent, if hardly spectacular, year. A growing number of expansion-hungry businesses, led by Wyevale Garden Centres owner Terra Firma, are waltzing around with their cheque books open, keen to capitalise on what they see as a market with strong long-term potential. And Dobbies has just de-valued its business by £83 million?
Tesco CEO Dave Lewis, says he has clear plans for the business, but he’s notorious for playing things close to his chest, so we shall have to wait for further enlightenment.
Meanwhile, the dearth of clues about its intentions makes us wonder whether Tesco actually knows what to do with a business that, soon after they bought it, had set its sights on 100 stores within 10 years.
