FTSE 100 Friday close: Supermarkets feel the heat as Tesco results disappoint

6th June 2014

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The FTSE 100 index of the UK’s top firms plateaued this week as the embattled supermarket sector came under even further pressure with Tesco’s latest set of results leaving a bad taste.

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The leader-board closed on Friday at 6,858.21, flat over the week but 44.72 points better on the day.

Tesco, Britain’s largest supermarket chain reported that in the three months to 24 May like for like sales – excluding petrol – fell by 3.7% in the UK.

The UK’s main supermarkets have been losing customers hand over fist to the ‘hard discounters’ such as Aldi and Lidl and have been dramatically cutting costs in a bid to compete.

So dire has the situation become that in 2013, Food and Drug retailers in the FTSE 350 saw their net profits plunge by 37% to their lowest level since 2007. This is in spite of revenues rising 1.2% to £113bn.

Since February, Tesco, down 4% over the week to 290.55p, has slashed its prices, cut home delivery charges and made its Grocery Click & Collect service free, all of which has hit its bottom line.

Chief executive Philip Clarke admitted its price-cutting is impacting near-term sales performance. He said:“The first quarter has also seen a continuation of the challenging consumer trends in the UK, reflecting still subdued levels of spending in addition to the more structural changes taking place across the retail industry.

“We are determined to lead in this period of change, building long-term customer loyalty and positioning the business to win in the multichannel era.”

The disappointing results hit the sector hard and competitor Sainsbury, updating the market with its own set of first quarter numbers next week, has investor nerves on edge after its shares endured a 6% fall over the week to 326.1p, making it the hardest hit blue chip.

For its part Morrison was also among the week’s top fallers, losing 4% to 193p. The troubled business, which lost £176m last year on the back of tougher competition was in the spotlight again as its ex-chairman, Sir Ken Morrison lambasted the supermarket’s head, Dalton Philips, when he compared his business plan to cattle manure.

Other steep fallers over the week include, utility group National Grid, off 5% at 848.5p, miner Fresnillo, down 4% at 775.5p and fashion house Burberry, also 4% lighter at 1,479p.

Aerospace and defence group Meggitt enjoyed a better week as shares in the firm jumped 8% to 522p. Stock in International Consolidated Airlines, finished 6% up at 418.9p after Deutsche Bank reiterated its ‘buy’ rating on the Iberia and British Airways owner.

Financial advisers and brokers St James’s Place and Hargreaves Lansdown both enjoyed a week of share price gains rising 6% to 827p and 7% to 1,299p respectively.

Among the FTSE 100 listed banking constituents Lloyds, which is seeing strong demand from investors for TSB shares, was the top and indeed only riser, moving 3% higher over the week to 80.15p. Elsewhere HSBC shed 1% to 624p, Barclays dropped 2% to 242.7p, Royal Bank of Scotland loosened 2% to 338.6p while Standard Chartered finished flat at 1,340p.

Aside from Sainsbury, next week sees ASOS update the market with its third quarter results, Argos and Homebase owner Home Retail Group releases its first quarter update and Mulberry unveils its preliminary results.

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