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Tesco shares plunge on profit warning

Friday, August 29, 2014 - 02:11

Britain's biggest retailer Tesco has slashed its interim dividend by 75 percent as tough trading conditions forced it to cut its profit forecast for the second time in two months. Hayley Platt looks at the challenges facing the new CEO who starts on Monday.

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The troubles just keep stacking up for Britain's biggest retailer. First this week Tesco reported falling sales of 4 percent. Now it's cut its profit forecast for the third time in three years and slashed the dividend by 75 percent. That sent shares tumbling more than 8 percent. Jo Rundle from ETX described the move as alarmist but necessary. SOUNDBITE: Jo Rundle, Head of Trading, ETX Capital, saying (English): "The situation there is very bad, it's a very big ship to turn around but ultimately it is a huge retailer in the UK. It has dominant market share still and it is beginning to react and I think it's a good sign they brought the CEO in early." Former Unilever executive, Dave Lewis will take up the helm on Monday, one month earlier than expected. He's described as a 'turnaround specialist' and he'll certainly have his work cut out. Tesco has dominated Britain's high streets for decades. But more recently the retail giant has been hammered by fierce competition from both ends of the market. Robert Cole is from Reuters Breakingviews. SOUNDBITE: Robert Cole, Assistant Editor, Reuters Breakingviews, saying (English): "There's a supermarket price war going on and Tesco really needs to get involved in that, Aldi Lidl, Asda they're all competing hard. Tesco's tried, it needs to redouble, if not re-triple its efforts to basically bringing its prices down so it gets more people going through the door." The new management team may also look at the viability of its international operations. It's the world's third largest retailer - employing half a million people. But it's tried and failed to make its mark in the U.S. and Japan. That distracted it from its core UK market, where it still does over two-thirds of its business. SOUNDBITE: Robert Cole, Assistant Editor, Reuters Breakingviews, saying (English): "I think investors are yes disappointed but they're also encouraged by the fact that Tesco is clearly grasping some very difficult nettles, really quite bravely and so that's going to mitigate the pessimism with a bit of optimism going forward ." They certainly need a little of that. The one time darling of the retail sector has revised down its outlook for 2014/15 from 2.5 to 2.4 billion pounds. It will also spend less on IT and revamping stores.

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Tesco shares plunge on profit warning

Friday, August 29, 2014 - 02:11