Tesco shares slump after profit forecast slashed


Shares in Tesco closed 6.6 percent lower on Friday, after the supermarket chain slashed profit expectations for the year and cut its dividend.

The company also confirmed that its new CEO, former Unilever executive David Lewis, would join the business on September 1, a month earlier than expected. Former CEO Philip Clarke quit the chain after a profit warning in July.

Supermarket share prices over the last seven days
CNBC | Thomson Reuters

The stock of other British supermarkets also fell sharply on Monday, following Tesco's announcement.

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Tesco's trading profit for 2014/2015 is now expected to be between £2.4 billion ($3.98 billion) and £2.5 billion, the supermarket said on Friday, compared to analyst consensus of between £2.7 and £2.8 billion. Tesco's website, however, shows analyst expectations of around £3 billion.

Tesco also said its capital expenditure would be cut, and its interim dividend would likely be set at 1.16p per share - a 75 percent reduction from last year.

"The combination of challenging trading conditions and ongoing investment in our customer offer has continued to impact the expected financial performance of the group," Tesco said in a statement. "The business continues to face a number of uncertainties, including market conditions and the pace at which benefits from the investments we are making flow through in the second half and consequently the board has revised its outlook for the full year."

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Tony Cross, market analyst at investment platform Trustnet Direct, said Tesco now looked like a company in "full-blown crisis mode".

"Many had expected the ax to fall here, but (these cuts are) certainly at the aggressive end of the spectrum," he said in a note. "However, getting the bad news out the way now ought to give the new CEO better scope to impress the markets in the months and years ahead without being harangued by investors at every turn."

Tesco, the U.K.'s largest grocer, has been struggling to hold on to its market share in the face of growing competition from discount retailers Aldi and Lidl, which have succeeded in targeting budget-conscious customers throughout the economic downturn.

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Tesco's market share fell to 29 percent in the 12 weeks ending 17 August this year, according to data from Kantar Worldpanel, down from over 30 percent the year before.

It comes amid a price war among the U.K.'s biggest supermarkets which has driven down the cost of food. The overall growth of the grocery market has hit a 10-year low, Kantar said, although budget grocers delivered growth ahead of the market.