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Tesco shares hit by weaker than expected profits | Tesco shares hit by weaker than expected profits |
(35 minutes later) | |
Tesco shares have tumbled 8% after the company reported disappointing profits. | Tesco shares have tumbled 8% after the company reported disappointing profits. |
While Tesco reported its 11th quarter in a row of rising sales, analysts were troubled by weak profit growth. | While Tesco reported its 11th quarter in a row of rising sales, analysts were troubled by weak profit growth. |
During the first half of the year, pre-tax profits rose 2.2% to £564m. | During the first half of the year, pre-tax profits rose 2.2% to £564m. |
Across the group like-for-like sales, which remove the impact of new stores, rose 4.2% in the second quarter. Tesco chief executive Dave Lewis said this was the best sales growth in more than a decade. | Across the group like-for-like sales, which remove the impact of new stores, rose 4.2% in the second quarter. Tesco chief executive Dave Lewis said this was the best sales growth in more than a decade. |
The firm had "made a good start to the year", Mr Lewis said, with profits mainly driven by growth in the UK and Ireland. | The firm had "made a good start to the year", Mr Lewis said, with profits mainly driven by growth in the UK and Ireland. |
But some analysts were more cautious. | But some analysts were more cautious. |
Bruno Monteyne, an analyst with investment bank Bernstein, said that Tesco has delivered strong sales growth in food in the UK and at Booker, but overall profits were "soft". | Bruno Monteyne, an analyst with investment bank Bernstein, said that Tesco has delivered strong sales growth in food in the UK and at Booker, but overall profits were "soft". |
Others had concerns over profit margins. | |
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said analysts had been expecting profits margins to be about 4% by 2020, but the supermarket chain saw margins of closer to 3.5%. | |
Neil Wilson of Markets.com said investors may have been expecting too much of Tesco. | |
"This looks rather like expectations had maybe been set a little too high, rather than Tesco underperforming," he said. | "This looks rather like expectations had maybe been set a little too high, rather than Tesco underperforming," he said. |
Last month Tesco unveiled a new discount chain called Jack's to take on discounters such as Aldi and Lidl. | Last month Tesco unveiled a new discount chain called Jack's to take on discounters such as Aldi and Lidl. |
Mr Lewis said he was "really very happy so far" with the performance of the two new stores. | Mr Lewis said he was "really very happy so far" with the performance of the two new stores. |
"So far, so very very good," he said. "The two stores are trading very well, consumer feedback is really very good." | "So far, so very very good," he said. "The two stores are trading very well, consumer feedback is really very good." |
Two more Jack's will launch on Thursday in Edge Hill and St Helens in Liverpool, he added. | Two more Jack's will launch on Thursday in Edge Hill and St Helens in Liverpool, he added. |
Sales at Booker, the food wholesaler that Tesco bought at the end of last year, jumped 15.1%. | Sales at Booker, the food wholesaler that Tesco bought at the end of last year, jumped 15.1%. |
Brexit plans | Brexit plans |
Mr Lewis said that retail market conditions were tough, and that the supermarket was making contingency plans for Brexit. | Mr Lewis said that retail market conditions were tough, and that the supermarket was making contingency plans for Brexit. |
"The biggest single challenge will be in a no-deal scenario, will be what happens with fresh food," he said. | "The biggest single challenge will be in a no-deal scenario, will be what happens with fresh food," he said. |
"It's all about product flow [over borders]. The possibility of stockpiling fresh food is very, very limited." | "It's all about product flow [over borders]. The possibility of stockpiling fresh food is very, very limited." |
Mr Lewis said in the lead-up to Brexit Tesco was focusing on how to ensure movements of fresh food were not held up. | Mr Lewis said in the lead-up to Brexit Tesco was focusing on how to ensure movements of fresh food were not held up. |
He added that the retailer was looking at stockpiling grocery products, with contingency planning stepping up after Christmas if a deal is still not struck. | He added that the retailer was looking at stockpiling grocery products, with contingency planning stepping up after Christmas if a deal is still not struck. |