Morning update: Tesco shares rose a small amount at the opening of the stock market, suggesting the City still has faith in Dave Lewis despite the retailer’s £6.38bn loss, the largest one-off loss in British retail history. With all the bad news coming out at once, the City’s reaction seems to suggest that Tesco’s future is brighter, a notion backed up by the first like-for-like sales volumes rise in over four years.
“Over the last six months we have put customers back at the centre of everything we do. By focusing on the fundamentals of availability, service and targeted price reductions, we have seen a steady increase in footfall, transactions and, most significantly, volumes. More customers are buying more things at Tesco,” said Lewis.
Nevertheless, the bare figures make grim reading for Britain’s largest retailer. With £7bn of write-downs, mainly based on a £4.7bn drop in the value of its property portfolio, the company also faces a growing deficit in its pension scheme, forcing it to commit to pumping an extra £270m annually to make up the shortfall. While there are no indications of an imminent rights issue, it is assumed Tesco will look to sell off some of its assets, with the prime target being data company Dunnhumby.
On top of all that, Tesco has taken £878m of impairments on items including its China venture, the Dobbies garden centre arm, and the Harris + Hoole coffee shops. Underlying profits were down 68%, at £961m.
Yesterday in the City
Associated British Foods (ABF) was the biggest casualty on the FTSE 100 yesterday as its shares plunged 5.3% to 2,712p following its interim results. The Primark owner suffered after its AB Sugar business dragged down pre-tax profits by 51% on the back of the crash in sugar prices ahead of the end of EU quotas in 2017. Despite the small loss registered by its sugar business, ABF expects the bottom line to even out over the year. There was some cheer as the agriculture, ingredients and retail arms all managed to increase earnings in the half year.
After rising a few pence above the previous day’s closing price, Tesco (TSCO) was 0.1% down at 4:30pm to 234.8p as it prepares to reveal to the City the full horrors of its annus horribilis today.
Fellow supermarket Sainsbury’s (SBRY) also fell yesterday by 0.5% to 273.2p, with Morrisons (MRW) managing a 0.3% rise to 198.5p.
The blue-chip index in general pulled off a small gain despite being held back by ABF. It finished the day 0.2% up to 7,062.9 points thanks to shares in ARM Holdings and Sky rising sharply after the companies announced strong profits.
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