Sector movers: Tesco's woes hit supermarket sector as shares tank
Tesco's highly-anticipated first-half results delivered a blow to the UK supermarket sector on Thursday despite profits coming in ahead of expectations, as analysts raised concerns about the struggles facing its new boss as he attempts to turn the business around.
FTSE 100
7,832.78
11:35 19/04/24
Morrison (Wm) Supermarkets
286.40p
16:55 26/10/21
Sainsbury (J)
258.00p
11:30 19/04/24
Tesco
280.30p
11:34 19/04/24
Tesco's shares were 7.3% lower at 169.6p in afternoon trade with the wider food and drug retail sector dropping over 5%.
The 4.6% plunge in UK like-for-like sales at Tesco during the first half would have also made for painful reading for rival chains J Sainsbury and Wm Morrison, who were trading down 3-4% in London.
It's been a terrible few months for Tesco, after a string of profit warnings, an accounting scandal and numerous senior management changes.
With expectations already low heading into the results, the 39.4% drop in trading profit at constant exchange rates to £937m was not as bad some analysts had feared, though the confirmation that the 'black hole' in its accounts was actually £263m and not £250m (as originally reported) would have come as a shock.
Also, the fact that the company did not give guidance for full-year profits was a disappointment to many. Analyst Darren Shirley from Killik said that the lack of guidance suggests "there is a further risk of earnings downgrades".
What's more, those hoping for new chief executive Dave Lewis to outline a major new strategy were left high and dry, with the strategic review still at an early stage.
"With nothing positive in the result and little announced in terms of future strategic direction, we don’t see the market taking the results well and hence believe that investors should remain on the side-lines," said analysts at Killik.
In regards to Tesco's valuation, Will Hedden from IG said that the stock is "now trading close to its book value, a point highlighted by some analysts that means it could still have further to fall".
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