Oct 3, 2018

Tesco shares fall after operating profits disappoint

Tesco shares fell more than 7 per cent on Wednesday after profits undershot expectations, even as the retailer showed further signs of sales and margin recovery in its core UK market. The consensus estimate for the metric was £978m; Tesco delivered a 24 per cent increase from last year, but to only £933m. Analysts at Barclays said in a note that the £45m shortfall "Can be explained entirely by Asian profit being £37m below consensus and also an £8m property loss". The investment bank has cut its full-year forecasts by 3 per cent to £2.06bn. Bruno Monteyne, grocery analyst at Bernstein, also flagged one-off impacts from the closure of Tesco Direct and heavy investment in the "Farm brands" that Tesco has introduced to help compete with discounters. Two years ago, chief executive Dave Lewis pledged to restore Tesco's operating margins to between 3.5 per cent and 4 per cent by the 2019-20 financial year. In Thailand, sales fell almost 5 per cent in the second quarter and profits were hit by price cuts and costs associated with repositioning the brand there.

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