Tesco Falls After Profit Warning

The selloff is overdone.
Tesco are not in financial difficulties - they simply said that profits will remain flat for a year or two.
The dividend is very unlikely to be affected.

Just as Tesco stormed ahead in the consumer boom - fuelled by non-food items - it is the non-food items (electricals etc) which have been acting as a drag on performance as consumers cut back on non-essential purchases.

Once the non-food sales reach their new low plateau, Tesco should start printing growth numbers again.

Also remember that their overseas businesses are still performing satisfactorily.

If I had enough money to buy the whole of Tesco, I would still be happy to pay yesterday's 390p price to take posession of the whole business even after today's announcement.

A couple of weeks ago, I suggested that I felt that the resilient "defensives" which did well in 2011 were looking relatively unattractive compared to some of the financials and commodity companies - and that the market may well get back to a "risk-on" attitude and dump defensives to pay for it.
Today's excessive drop in Tesco - and the other retailers - probably reflects an element of sector rotation that the market was just looking for any excuse to persuade them to switch.

Excuse my ignorance -but doesn't the trading statement say 'minimal Group trading profit growth for the year.' which is not the same as minimal profit growth?

I know its something of a technicality but group trading profit excludes a number of items, specifically property related items, JV's and finance costs and I suspect this is why the next paragraph reminds us that capex is expected to fall significantly.

Now I'm not suggesting that Tesco will fiddle the figures any more than normal but it's worth noting that at the recent interims group 'trading' profit was +3.7%, group stat prof/operating profit +5.9% and group Pbt +12.1% and underlying profit +6.2% just to give some idea of the gap that can ocurr between trading and operating profits.

No doubt the UK business has got a lot of work to do which will take time - and we can now see why Phil Clarke has established a separate board for the business. But it would be a mistake, though an understandable reaction, to read too much into this mornings kitchen sink exercise in my view,

cheers

Mark

I bought this morning at 335p, doubling my holding in Tesco.

Surely the bigger buying opportunity right now is Sainsbury? Best Christmas trading ever, share price heavily knocked down on the back of Tesco, offers the best dividend of the 3 and is growing reasonably well. Depends on timeframe I suppose, but a bounce, deadcat or otherwise, must surely be coming once the market realizes that the falls have been overdone. Tesco's result does not justify knocking £5billion off the value of the company, God help it if it ever announced a slight loss (as against a 5% increase across the whole company - that's £1billion in value fall for each 1% of increase!).

filling my boots with tesco at 330 AND morrisons at 280.

what will this look like in five years time.

Tesco shares down 15% this morning? I blame Antony Worrall Thompson! :0)

Cliff

Hargreaves Lansdown are reporting that Tesco is their most traded stock today and that 99% of orders are buy!

LastChip, I would say you are probably right, but unfortunately the market does not see Tesco as an international business, if they did there is no way it would fall 15% on these results, after all its total sales growth was 5.2%. It is still seen as a UK retailing business.

GrangeInvestor, it makes you wonder who is selling then?

Which would you rather own today? Tesco or Ocado?

Surely the former, agreed?

See: Ocado Shares Soar As Sales Surge
http://www.fool.co.uk/news/investing/company-comment/2012/01/12/ocado-shares-soar-as-sales-surge.aspx


Cliff

SevenPillars, I can't argue with that, but the market isn't logical. If it was, the market as we know it wouldn't exist.

I can't begin to count the number of times I've seen this scenario before, and soon after when the sellers decide they've overdone it, the price rebounds.

Of course, I could be absolutely off my trolley and totally wrong, but as I said, we'll all know soon enough.

The point is, even if I am wrong, the company is essentially solid and defensive in these troubled times. If I have to own them for a few years just to break even on capital, sobeit. But in the meantime (hopefully) I picked up a good few dividends along the way. And by the way, at my time of life, dividends are an extremely important part of the equation.

Sometimes though, betting against the heard pays off handsomely.

I have had Tesco on my watch list for a long time and finally took the plunge today at 129. As usual I failed to catch the falling knife and they are at 124 now :(.
Reading some of the internet boards there now seems to be building concensus that these shares could fall below 300 and I have seen one comment that they could even drop to 270ish before they find support as a large percentage of Tesco profits are made over the Christmas period (not my comment).

Having now become a Tesco shareholder I would be interested in what other poeple think about which direction this share will go from here.

In truth dubre, my wife has tried Aldi and was very underwhelmed. Not tried Lidl though, so can't comment.

I don't think it's right to sight complacency. It's all about market presence and there are now few places in the UK, where you can't find a local Tesco's or Sainsburys, some of which are now 24 hour operations.

Certainly where I live Aldi and Lidl remain very minor players, even after some years presence. While Asda has fewer stores, those that do exist are (in my view) a far greater competitive challenge. Walmart being the owner, you wouldn't expect anything less. One should also not forget M&S and Waitrose either, though they are perceived as a more expensive option.

Well, the Milton Keynes Tesco usually has some essential items missing from the shelves, followed by long queues and slow dour customer service.

It's no surprise to see them losing out to Sainsburys.

apprenticeDRL

There is clearly a possibility of a fall below 300, especially if we get a general market pullback over the next week or so as seems likely given the move up to around 5700 on the FTSE since the new year. FTSE up again today, but there is still no love or bounce for Tesco in that move, so far it is down again, 318 as I write. 270 seems very low, last seen by Tesco back in 2004 according to the charts, even during the worse days of the credit crunch in 2008 in didn't go below 280.

Yesterday was the worse one day fall in the company's history according to reports, which given all the crashes and financial fears of recent times is quite remarkable, you would have thought that they had announced a loss and no growth rather than a profit and 5.2% sales growth! The extent of the fall still looks very overdone unless people believe that this is the start of major problems for the company.

Given that they have 30% of the UK market it is easier to see this falling further as it is simply difficult for a company of this size to keep on growing in its home market, hence the rapid expansion abroad. I don't buy the doom and gloom in the city yesterday that reduced earnings in the UK stops expansion overseas, it may slow yes, but the company is still making £billions of profit! The fall is grossly unfair to long term shareholders who bought at a higher price, but fairness plays no part in the city game. Yesterday was a good example of the stupidity of rational market theory. There is nothing rational about what props up or otherwise a share price.

If they had announced a real profits warning, along the lines of the type we are used to seeing from the likes of Blacks Leisure, HMV, etc, then it would be time to worry. But for now Tesco shareholders have a dividend of 4.5%, with I suspect little or no chance of it being cut (although Digital Look has next years divi at 4.00% which seems strange to me). Sainsbury has a dividend of around 5.3%, again with probably little chance of it being cut.

For those who bought into the falling knife there could still be further falls to come, given the lack of an immediate bounce. This concerns me a little because usually after such a big, quick fall, a retracement of up to half the fall tends to happen quite quickly. So far nothing with Tesco, while Morrisons as an comparison has retraced slightly. Probably best now to wait for the dust to settle and keep watching the charts,partly on the basis that the fundamentals of Tesco right now seem to have been thrown out of the city window.

worth noting a director just bought £100k at 329.

Finally Tesco comes within my sniffing zone. Sadly for many, I reckon this knife has further to fall, along with all other equities - FTSE at 5,6-5,7 is la-la land.

The drop seems very odd to me. Profit-taking, sector rotation? Who can tell. Surely the divi isn't in question? The perception that overseas expansion may take a hit aro lower than expected domestic revenues? Wonder what Mr "I'll be in there with a shovel if it drops" Buffett is making of this.

"Pile it high and sell it cheap" starts to take on myriad new meanings...

another worry about tesco.

i suspect they have a collection of prehistoric IT systems.

even within the bank business their are seperate logins for three systems eg savings, credit cards,loans.

each of these logins has its own set of associated security criteria.

The Tesco i work in hasn't taken on any new staff in 3 years, saturday is the busiest day but has highest staff turnover. Tesco ae trying to save a few thousand on carry bags and frequently run out which annoys customers. They are also losing thousands to theft because they dont want to pay a security guard £7 an hour. In spite of this the store frequently misses targets. Excessive cost saving targets from head office are to blame for not enough staff at every level

There are many simple cheap measures that TESCO management could do to improve the customer’s shopping experience.

Note the litter on the streets and pavements surrounding TESCO’s stores. The management put no importance on the immediate environment: sending a lad out from time to time with a brush and shovel.

Note the ten or so abandoned trolleys at every entrance. The management give this no importance. The entrances look like a wasteland.

Note the amount of litter among the bushes on every border. Would you let this management manage your garden?

Note the barely visible lines in the car park: no interest to management. The white patches on the pedestrian crossing are barely visible. It is an accident waiting to happen – with subsequent claims for damages. Neat clean white lines in the car park create an impression that the management actually cares.

Note the litter in the car park: management clearly does not tell staff to collect litter when they collect trolleys.

Note the number of trolleys with litter in them: management clearly does not tell the staff to remove litter when they gather up the trolleys.

Note the lack of the smaller lighter trolleys that many customers prefer: management deliberately forces customers to use larger trolleys – hoping that they will buy more. Is this is putting the customer first?

Note the lack of any notice board, stating, with a picture, who the duty manager is, and how HAPPY he would be to help you. Is this is putting the customer first?

Note the newspaper stand: papers are DELIBERATELY unreadable - on display upside-down. Is this is putting the customer first?

Note the lack of a mirror. A small courtesy I know, but surely shoppers like to check their attire. They may well be meeting neighbours on their enjoyable? visit to TESCOS. Is this is putting the customer first?

Note the state of the customer toilets! Compared with other supermarkets, are they not third-rate? The bitter smell of cheap detergent, no chart showing the cleaning and checking schedule, no flowers or canned music. Quite often some facility is out of use. If top management are perfectly happy with this low, basic level of cleanliness, would you accept an invitation to dinner from a member of management?