More than £1bn was wiped off Tesco’s value yesterday after the beleaguered retail giant issued its fourth profits warning this year and analysts predicted the group will make a loss in its second half.
The UK’s biggest retailer has suffered a dramatic loss in market share as discounters Aldi and Lidl eat away at its market leading position and shoppers decamp to other stores.
Shares in the group, which is the world’s third biggest retailer, fell 6.6 per cent to 174.9p giving the group a market capitalisation of £14.207bn, down from £15.214bn at Monday’s close.
Tesco cut its full-year trading profit forecast by nearly a third and analysts at Espirito Santo warned that the group is at imminent risk of being rated as “junk status” by credit agencies.
Tesco has struggled to cope with the rise of the discounters and has been criticised for yo-yo pricing - putting prices up in order to cut them to offer shoppers “bargains”.
The group has also been hit by its over-dependency on huge out-of-town sites when customers are switching away from the weekly shop to regular top up shops at convenience stores, backed up by bulk buying online.
Chief executive Dave Lewis, who joined in September on a rescue mission, said the lower guidance reflects new accounting policies and procedures following the recent £263m accounting scandal and investment in stores, staff and lower prices.
“The combination of all those things gets you to an investment which is a little bit north of £500m,” said Mr Lewis.
Tesco said it expects group trading profit for its 2014-15 year to be lower than £1.4bn, down more than £500m on analysts’ average forecasts of £1.94bn.
Analyst Rickin Thakrar at Espirito Santo said: “While we expect Tesco to cut capital expenditure to maintenance and forego dividends for the next two years, we believe Tesco still needs to cut prices by at least five to 10 per cent and improve the quality of its produce alongside convincing consumers and investors that an out-of-town, large, uncompetitive shop at an expensive bespoke site is still relevant.”
“We now think Tesco could start earning consistent losses in the UK versus our previous view of zero profits.”