Asda Achieves Profitability in 2023 Amidst Increased Competition and Debt Management

In 2023, Asda, the UK supermarket with a 10% stake owned by Walmart, returned to profit, reporting a pretax profit of £180 million despite a decline in market share. The Issa family and TDR Capital acquired Asda for £6.8 billion in 2021, and TDR is set to gain majority ownership. Asda experienced a 24% increase in adjusted EBITDA, but sales declined 4.9% YoY, leading to a loss in market share. Asda, struggling with high debt costs and a net debt of £3.8 billion, aims to grow its business and offerings for the long-term.

Asda, the United Kingdom's third-largest supermarket chain, reported a significant improvement in financial performance for the year ending 2023, posting a pretax profit of £180 million, marking a 24% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) [1]. This positive news comes amidst a decline in market share, reflecting the complexity of the UK retail landscape.

Despite experiencing a 4.9% decrease in sales year-over-year (YoY), Asda managed to boost its adjusted EBITDA by 24%, driven by strategic investments in pricing and product quality [1]. This strategic focus is part of a broader plan to enhance the company's convenience store presence by rolling out Asda Express stores across sites acquired from the Co-op and EG Group, of which Asda's new owners, the Issa brothers and TDR Capital, are also shareholders [1].

Asda's new owners acquired the supermarket chain from Walmart in February 2021 for £6.8 billion, with the Issa brothers and TDR Capital taking a majority ownership stake [2]. The transaction, which received regulatory approval in Q2 2021, left Walmart with a 10% equity investment in the business and a seat on the board [2].

The UK retail market has been challenging for Asda, which had a 13.8% share of Britain's grocery market in 2022, down 50 basis points YoY [1]. However, the Issa brothers remain optimistic about the company's prospects, citing its "rock-solid foundations" and noting that they have made a significant start on growing the convenience business [1].

Despite the financial improvement, Asda continues to grapple with high debt levels. The company's net debt was reduced to £3.8 billion at the end of 2023, but finance costs rose to £225 million, up from £185 million in 2022 [1]. Asda remains committed to further deleveraging.

The strategic changes at Asda, combined with its financial improvement, demonstrate the company's resilience and adaptability in the face of a challenging retail environment.

References:
[1] Reuters. (2024, April 22). UK supermarket Asda says 2023 underlying profit up 24%. Retrieved from https://www.reuters.com/business/retail-consumer/uk-supermarket-asda-says-2023-underlying-profit-up-24-2024-04-22/
[2] Walmart. (2021, February 16). Issa Brothers and TDR Capital complete acquisition of Asda from Walmart. Retrieved from https://corporate.walmart.com/news/2021/02/16/issa-brothers-and-tdr-capital-complete-the-acquisition-of-asda-from-walmart