Tesco shares tumble following attacks


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Tesco shares tumble following attacks

  1. 1. Tesco shares tumble following attacks By Andrea Felsted, Senior Retail Correspondent ©Bloomberg Investors and analysts have attacked Tesco’s fresh attempts to turn round its UK business, sending the shares down as much as 5 per cent. The reaction to the strategic initiatives underline the difficulty that Philip Clarke, chief executive, faces in turning round Britain’s biggest retailer, in the face of ferocious competition from online shopping and the so-called hard discounters, Aldi and Lidl. Shares in Tesco, which had hoped to reassure the market, closed down 2.7 per cent to 326p. Tesco on Tuesday attempted to kick-start a recovery plan for its domestic business, which has so far failed to stem slides in sales and market share, including plans to halve new UK supermarket space and spend £200m cutting prices on staple items. But some investors and analysts said the measures did not go far enough to see off the threat from nimbler rivals, including the hard discounters. One top 10 shareholder said Tesco needed to “become best value in consumers’ minds, and that probably involves substantially greater investment in margin. It probably means margin coming down to [a figure with] a two in front of it instead of a four. If you can do that, it would be very hard for their competitors to follow and they will get momentum. All these little piecemeal [cuts] are doing is causing profits to drop constantly, without reversing the overall decline in market share and the resurgence of the discounters.” Dave McCarthy, analyst at HSBC, who has called for Tesco to take down its prices significantly, said: “£200m is not enough for a substantial price repositioning, and Tesco has not made it clear yet whether there will be more behind this or not.” Clive Black, analyst at Shore Capital, said Tesco had scope to be “more aggressive” on price to take on Aldi and Lidl. Jonathan Pritchard, analyst at Oriel Securities, noted that even the company’s ill-fated Big Price Drop in autumn 2011 – blamed for the January 2012 profit warning – had been £500m. “Big Price Drop was poorly communicated two years ago, but at least it was a sizeable £500m off prices,” he said. Mr Clarke would not put a figure on what the margin might be as a result of the latest actions, saying, “the margin will be what the margin will be”.
  2. 2. However, Deutsche Bank and Barclays, joint brokers to Tesco, forecast a margin of 4.6 per cent and 4.5 per cent, respectively. The two brokers also cut their forecasts of Tesco’s profits this year by 6 per cent. Tesco on Tuesday also pledged to invest £200m in extending a scheme that offers cheaper fuel to members of Tesco’s Clubcard loyalty scheme.