What Tesco’s record-breaking loss means for investors

22nd April 2015

Ian Forrest, investment research analyst at The Share Centre, looks at Tesco’s massive loss, which is the worst of any UK retailer on record…

“This morning there were more dismal figures from struggling retail giant Tesco, as it reported a record pre-tax loss of £6.4bn. That included a colossal £7bn in one-off charges of which the main one was a £4.7bn property impairment charge. Sales for the year dropped 1.3% to £69.6bn and the trading profit, which gives a better indication of the ongoing state of the business, plummeted 57.5% to £1.4bn.

“When it comes to the future the new chief executive Dave Lewis provided little cheer, saying only that the market remains challenging and warning that there might be further volatility in future results due to the large-scale changes he is implementing.

“Investors may take some comfort in the market’s reaction to all of this bad news today. The shares rose 2% in early trading and remain well above the 155p low seen last December. The main reason is simply that all of today’s bad news was already anticipated and there was relief that the figures were not even worse. Some analysts fear a rights issue may still be necessary to bolster the company’s balance sheet.

“These are clearly disappointing results for Tesco. However, there was a sense of the company attempting to clear the board and get all the bad news out of the way. The recovery is likely to take a long time, but there are some encouraging signs with UK trading improving in the second half of the year and a 20% rise in the online grocery business.

“We continue to recommend Tesco as a ‘hold’ for patient medium risk contrarian investors. However, for investors interested in the sector, we would recommend Sainsbury’s as a ‘buy’ due to its robust sales and attractive dividend.”


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