Tesco rocked by yet another profit warning

9th December 2014

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Tesco has been rocked by yet another profit warning today- its fifth in only 12 months.

It revealed that its full-year profits will be significantly lower than market expectations.

The store admitted its group trading profits “will not exceed £1.4bn”, but forecasters had been expecting these to fall within the range of £1.8bn to £2.2bn.

This compares to last year’s profit figure of £3.3bn.

Shares plunged 16% in response to the impromptu market update, to a 14-year low of 156p.

It follows the scandal earlier this year when it was revealed that the retailer had over-stated profits by £263m, prompting the launch of an investigation by the Serious Fraud Office.

Eight Tesco executives were suspended following the revelations, one of whom returned to the business when an internal probe found that he had acted according to his duties.

Shares in other supermarket groups also suffered today, with Morrisons falling 6% and Sainsbury’s down 4%.

Dave Lewis, Tesco chief executive, said:  “We still have much to do but are making good progress in developing our plans to improve the long-term positioning of the group. Our priorities remain restoring competitiveness in the UK, protecting and strengthening the balance sheet and rebuilding trust and transparency.”

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “The trading update may be brief and patchy on detail, but it has provided more ammunition for the snipers.

“If there had been hope that the market would be immune to yet another profit warning, this quickly evaporated as Tesco has provided profit guidance which is nearly 30% shy of an already lowered estimate.

” The company partially attributed the lower figure to increased investment in the business, but amidst the accounting mishap, the revolving door in the boardroom and an unforgiving attack from the discount retailers, investors have simply lost interest in waiting for a recovery story which still seems some way off.”

Hunter added: “Even prior to today, and as a result of the uncertainty, the share price had taken a battering, having fallen 44% over the last year, as compared to a 2% hike for the wider FTSE100, and down 36% in the last six months alone.”

Unfortunately, there remains only one constant amidst the turbulence, which is the market consensus. This remains rooted at a sell and seems likely to remain so.”

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