3rd Oct 2018 11:14
LONDON (Alliance News) - Shares in the UK biggest supermarket chain Tesco PLC fell Wednesday as the grocer's half-year operating profit missed analysts consensus.
Tesco shares were trading down 8.5% at 215.30 pence each, the top faller in the FTSE 100 index.
"Tesco reported a further improvement in quarterly sales today, the eleventh in a row, but first half operating profits were below expectations and the shares have dropped in reaction to this news," Ian Forrest, investment research analyst at Share Centre, said.
He added: "While the continued growth in sales is encouraging the profit miss clearly rattled the market today."
In a meeting with analysts, Tesco's Chief Executive Dave Lewis said the company is "bang on" on where it wanted to be at this point of the year, and it is in "very good shape".
The retailer posted operating profit of GBP933 million for the six months to August 25, up 24% on last year's GBP750 million but missing analysts expectations ranging between GBP962 million and GBP992 million.
Pretax profit for the first half grew 2% year-on-year to GBP564 million from GBP553 million.
Revenue, including value added tax and fuel, came in 12% higher than the prior year at GBP31.73 billion versus GBP28.33 billion. Excluding VAT and fuel, revenue increased 13% to GBP28.29 billion from GBP25.16 billion.
First half administrative expenses almost doubled to GBP1.05 billion from GBP780 million, partly offset the revenue increase.
By geography, the UK & Ireland - Tesco's biggest market - saw like-for-like sales growth of 3.8% year-on-year to GBP25.70 billion.
Central Europe sales dipped 1.5% to GBP3.11 billion due to change in Sunday opening regulations in Poland. Asia sales fell 7% to GBP2.36 billion due to drop in sales, price investment and renegotiation of promotional investment in Thailand.
David Madden, market analyst at CMC Markets UK, said: "Sales in Central Europe and Asia continue to underperform, but at least the situation in Asia is improving, as second-quarter sales dropped by 4.8%, while there was a 9% drop in the first-quarter."
The company's banking arm, Tesco Bank, recorded first half operating profit of GBP889 million, up 6% year-on-year. Revenue grew 4.2% to GBP547 million. Tesco Bank was recently fined GBP16 million by the Financial Conduct Authority relating to a 2016 cyber attack.
Lewis, in the company's first half results statement, said: "We have made a good start to the year. The step up in the second quarter is driven mainly by the UK & ROI and delivers our eleventh consecutive quarter of growth."
"We are firmly on track to deliver our medium-term ambitions and are continuing to improve the quality and value of our offer for customers in all of our markets. In doing so, we are well-positioned to deliver strong, sustainable returns for shareholders," he added.
Tesco hiked its interim dividend by 67% to 1.67 pence per share from 1.0p paid a year ago.
The grocer has delivered GBP1.1 billion in costs savings so far, steadily approaching its GBP1.5 billion target set in 2016.
Last month, Tesco launched its own discount chain, Jack's, in a bid to fight-off competition from German discounters Aldi and Lidl, who are gaining market share faster than all other rivals.
In the analysts meeting, CEO Lewis said that the first two Jack's stores opened in September have been trading "very well" and the company is preparing to open two more Jack's stores on Thursday.
"The introduction of Jack’s is certainly a bold step and Tesco will need to emphasise quality at greater value rather than simply lower price," Julie Palmer, partner at Begbies Traynor, said.
She added: "However, Jack’s has been received well and customers will always go where the deal is."
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