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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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