AMSTERDAM —Tesco Plc’s year of misery continued as new Chief Executive Officer Dave Lewis said earnings at the UK grocery leader will be about half an August forecast, amplifying a crisis that has weighed on the stock for months.
Full-year trading profit won't exceed 1.4 billion pounds ($2.2 billion), Britain's biggest retailer said today, dropping earnings to a level not seen in at least a decade. The shares fell as much as 17% to the lowest in almost 15 years.
Tesco shopping bags in a trolley in Liverpool, England. Britain's biggest retailer Tesco issued on Dec 9 a major profits-warning, sending its share price crashing, as the supermarket group undergoes changes to its business triggered by a fraud probe. (AFP photo)
"It is clear that Tesco's new management team is willing to take a period of significantly lower profitability, and even losses in the UK, to move Tesco to a more sustainable footing," Darren Shirley, an analyst at Shore Capital, said in an e-mailed note, after Tesco issued its third profit warning in five months.
The forecast provides the first indication of how earnings will be affected by moves to revive sales following one of the toughest years in Tesco's history. Mr Lewis is changing the way the grocer works with suppliers, adding staff and cutting prices to win back shoppers who have deserted to discounters Aldi and Lidl. In his 100 days at the company, he's also had to contend with the discovery of an accounting black hole.
Mr Lewis is reviewing all aspects of the business after Tesco reported a 41% drop in first-half profit and a bigger accounting hole than originally anticipated. Divestments of the retailer's operations in countries such as Thailand or South Korea, or assets such as the Dunnhumby data-analytics business are among possibilities that have been suggested by analysts.
"We have yet to hear about the level of profits that will be impacted by selling assets in 2015," said Mike Dennis, an analyst at Cantor Fitzgerald in London. "You've got those factors to think about before you even say whether Tesco can afford to pay a dividend in the next financial year and how far down the earnings will fall."
The company will give more details about its strategy Jan. 8.
Tuesday's profit forecast was below the 1.9 billion-pound average estimate cited by at least two analysts. The grocer, based in Cheshunt, England, said in October it couldn't give an annual profit estimate, after earlier predicting earnings of as much as 2.5 billion pounds. The company disclosed in September that it had overstated past profit estimates.
Mr Lewis said on a call with analysts that there's been no deterioration in trading during the third quarter of the grocer's financial year. The quarter has been "in line, if anything ever so slightly better" than the first half, he said.