Tesco shares plummet as retailer warns on profits

By Gemma McKenna

Published: 09 December, 2014

Tesco has issued a warning flagging full-year trading profit will not exceed £1.4 billion - 20% lower than analysts' expectations.

The supermarket says it has "implemented new policies and procedures" and taken unspecified actions to invest in its customer offer - but does not go into detail at this stage. The £1.4 billion profit warning for FY 2015 follows FY 2014 profit of £2.26 billion.

Share prices have plunged almost 15% on the back of the unscheduled announcement.

Chief executive Dave Lewis has promised more details on the new plans on January 8, 2015. While specifics are scant, the announcement says the retailer will change its "commercial approach [to] underpin stronger long-term relationships with our suppliers", adding that it had retrained its entire team.

It says it has also boosted staff store numbers by 6,000 and is looking to improve "product availability on key lines".

Lewis said: "Tesco is focused, and will continue to focus, on doing the right thing for customers. This means running our business in a way that everything we do creates sustainable value. Whilst the steps we are taking to achieve this are impacting short-term profitability, they are essential to restoring the health of our business. We will not engage in short term actions that compromise in any way our offer for customers.

"We still have much to do but are making good progress in developing our plans to improve the long-term positioning of the group and I will share more of that on January 8. Our priorities remain restoring competitiveness in the UK, protecting and strengthening the balance sheet and rebuilding trust and transparency. For now, all the Tesco team is focused on delivering the best Christmas for customers."

Analyst Mark Brumby of Langton Capital said: "The issue with Tesco is that, due to its size, and the compromising investigations it is currently putting up with, a lot more still needs to be done, assuming its competition continues to move forward. Despite its poor performance, Tesco is still a £15.5 billion market cap company - there is still plenty of scope for more negative re-ratings."

Tesco has been in the spotlight since September, when it announced its profits had been misstated to the tune of £250 million. It was later revealed that the actual figure was £263 million. It is currently under investigation by the Serious Fraud Office, and eight senior executives were suspended - four of whom have now permanently departed from the business, while one, Matt Simister, has been returned to his post. Global head of wine, beer and spirits, Dan Jago, remains on suspension.

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