Tesco issues profit warning

Shares in Tesco dropped 7.13 per cent on Friday (August 29th) morning after the supermarket issued a profit warning.

The company highlighted "challenging trading conditions" as one of the reasons why it revised its full-year profit forecast from £2.8 billion to £2.4 billion. Officials said in a statement that the group's financial performance would be affected by the figures, adding that the dropping sales have contributed to Tesco losing its market share.

Tesco stated that it would be cutting costs with capital expenditure expected to be capped at £2.1 billion, £400 million less than planned and £600 million less than the same period a year earlier. The supermarket has cut its half-year dividend by 75 per cent and expected this to result in a share price of 1.16p.

Sir Richard Broadbent, Tesco's chairman, said: "The board's priority is to improve the performance of the Group. We have taken prudent and decisive action solely to that end.

"The actions announced today regarding capital expenditure and, in particular, dividends have not been taken lightly. They are considered steps which enable us to retain a strong financial position."

Supermarkets have been facing increased competition of late with the rise of discount stores such as Aldi and Lidl. The two have been making great strides to claim a market share at a time when the more established names are experiencing tough trading conditions. Both Morrisons and Asda have carried out restructuring schemes in recent months, leading to a range of redundancies.

Sainsbury's announced that it would be teaming up with Danish retailer Dansk Supermarked to relaunch Netto in the UK. The Scandinavian range of stores has not operated on British shores since 2010 but Sainsbury's believes that its reintroduction will help it better compete with Aldi and Lidl.

The new outlets are expected to be opened next year.

Find up to date information on the FTSE 100 and spread betting strategies at City Index.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.