Wednesday 7 October 2015

Tesco issues profit warning

London, January 13, 2012

Tesco has issued its first profit warning in living memory, sending shares in British grocers tumbling on fears the world's third-biggest retailer would launch a price war to fight back from its worst Christmas in decades.

The warning, which prompted the biggest one-day fall in Tesco shares since 1988, raised the spectre of a drop in profitability for the industry as a whole and threatens the cash engine that drives the company's overseas expansion.

Chief executive Phil Clarke said operating profit in 2012/13 would be flat, compared with forecasts for a 10 per cent rise, as Tesco, previously one of corporate Britain's most consistent growth stories, invested hundreds of millions of pounds in fixing what he described as "long-standing" problems in its home market.

Tesco will invest in staff and better products as well as continuing a price-cutting campaign launched in September. It will cut back openings of big hypermarkets, the key to its conquest of Britain's retail sector in the 1990s, and focus on faster-growing smaller stores and the Internet, he said.

Shares in Tesco plunged as much as 16 per cent to a 33-month low of 324.25 pence, wiping 4.8 billion pounds ($7.4 billion) off its stock market value.

Tesco's warning was accompanied by a raft of weak trading updates from British store groups including Home Retail-owned Argos, bicycles-to-car parts group Halfords and Mothercare, underscoring how cash-strapped Britons have been cutting back spending on non-essentials.

Tesco accounts for about one in every £10 spent in British shops and makes more than 70 per cent of trading profit in its home market.

It said sales at British shops open over a year dropped 2.3 per cent, excluding fuel and VAT sales tax, in the six weeks to Saturday. A 0.9 per cent fall had been forecast.

Tags: profit | retailer | Tesco | British grocer |


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