Supermarket giant Tesco rocked by new crisis
LONDON: British supermarket giant Tesco has plunged deeper into crisis after issuing yet another profits warning, cutting both its dividend and capital expenditure, and rushing in its new chief executive.
In reaction to the dire trading update, Tesco shares plunged by more than 8.0 percent in early morning deals on the London stock market to strike an 11-year low point.
The company is Britain’s biggest retailer and describes itself as “one of the world’s largest retailers,” with activities notably in China, India and eastern Europe.
The group, which has struggled on its main market in Britain in the face of stretched household budgets and fierce competition from German-owned discount chains, blamed challenging trading conditions and high investment costs for Friday’s announcement.
Trading profit was forecast at between £2.4 billion and £2.5 billion ($4.0 billion and $4.2 billion, 3.0 billion euros and 3.15 billion euros) in the 2014/2015 financial year.
That was well below market expectations of between £2.7 billion and £2.8 billion, and was down on the £3.3 billion reported in the prior year.
Tesco also slashed its interim shareholder dividend by 75 percent to 1.16 pence per share, while expenditure was cut by £400 million to no more than £2.1 billion.
And in another surprise move, new chief executive Dave Lewis will start on Monday — one month earlier than planned — in order to carry out a review of “every aspect” of the business.
“The combination of challenging trading conditions and ongoing investment in our customer offer has continued to impact the expected financial performance of the group,” Tesco said in the statement.
“The business continues to face a number of uncertainties, including market conditions and the pace at which benefits from the investments we are making flow through in the second half and consequently the board has revised its outlook for the full year.”
Tesco had announced last month that outsider and Unilever executive Lewis would replace Philip Clarke, who had shocked markets at the start of 2012 when he oversaw its first profits warning for 20 years.
That sparked a £1.0-billion turnaround plan to refresh supermarket stores, but the group revealed in April that annual profits fell for the second year in a row.
Clarke was ousted last month after Tesco warned that profits would be “somewhat below expectations.”
Approaching midday on Friday, Tesco shares were down 5.38 percent at 233.05 pence on London’s FTSE 100 index, which, however, rose 0.12 percent.
“Tesco has shocked the markets by announcing another profits warning, slashing its dividend by 75 percent and rushing in the new CEO Dave Lewis a month before he was originally due to start,” said IG analyst Alistair McCaig.
“All this smacks of desperation … Unsurprisingly, UK food retailers dominate the list of stocks falling in the FTSE with Sainsbury, Morrisons and Marks & Spencers all tumbling.”
Sainsbury stock was down 2.97 percent at 294.49 pence, Morrison fell 4.19 percent to 179.085 pence and M&S slid 2.03 percent to 429.2 pence.
Tesco has struggled in recent years in Britain, as recession-weary shoppers have turned to discount retailers Aldi and Lidl.
Discount chains boomed during the downturn as consumers tightened their belts to save cash, and remain popular despite the economy’s strong recovery.
Tesco’s profits have also been weighed down by fierce competition from its traditional supermarket rivals comprising also Wal-Mart division Asda and upmarket chain Waitrose.
Over the past two years, Tesco decided to close its failed US division Fresh & Easy and to exit from Japan, as it sought to transform its fortunes.
Tesco is the world’s third-biggest supermarket group after France’s Carrefour and global leader, US retailer Wal-Mart.