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Tesco's shares tumble after second profit warning

Published:  29 August, 2014

Tesco's stock tumbled 8.0% in early trading today as the company issued a second profit warning this year and announced it would be cutting its dividend by 75%.


The company also announced that new chief executive officer, Dave Lewis, has brought his start date forward a month and is set to start Monday next week in the hopes of addressing the issues the supermarket giant faces. Previous CEO Philip Clarke was ousted early this year as a result of the retailer's financial performance.

Profit forecasts have been update to come in between £2.4 billion and £2.5 billion. Profit expectations for the 2014/2015 year were expected to come in between £2.7 billion and £2.8 billion, which was well below the reported £3.3 billion profit the company posted in 2013/2014 fiscal year.  

Tesco has been losing ground in the supermarket price wars as discounters like Aldi and Lidl continue to gain marketshare in the UK, while upmarket stores like Waitrose also show growth.

Tesco said in statement it released: "The combination of challenging trading conditions and ongoing investment in our customer offer has continued to impact the expected financial performance of the group."

The competition for grocery consumers has become fierce in recent months, which is generating further uncertainty in the market.

"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" the statement said.

Several retailers have invested money into bringing everyday products price points lower to attract customers, including competitors like Morrisons.

Morrsions committed to spending £1 billion on price cuts on over 1,200 to help bring in more consumers early this year. The investment seems to have worked. According to recently released Kantar Worldpanel figures sales rose 2.4% in the four weeks to 17 August; the first time Morrisons has seen sales growth in nine months.

Both Tesco (LSE:TSCO) and Morrisons (LSE: MRW) stocks rate of return have declined by over 30% in the past year, further signalling the challenges that middle priced grocery chains are facing in the supermarket price wars.

Tesco recorded a 4% decline in sales in the 12 weeks to 17 August and its marketshare fell further to 28.2%, according to Kantar figures.