Star stock-picker Neil Woodford has warned it could be years before he again dared to sink cash into Tesco giant or its major rivals in a nightmare week for Britain's biggest supermarket.
The £7 billion fund manager — who sold his stake in Tesco in the wake of the grocer’s first seismic profit warning in early 2012 — said the industry faced a lengthy battle against “depressed margins and crushed profitability”.
Tesco is reeling under a new crisis after four senior executives were suspended following the discovery of a £250 million black hole in its profits, sending its shares plunging to their lowest since 2003.
The dividend has also been slashed as new boss Dave Lewis begins the task of restoring Tesco’s battered reputation.
The grocer is the biggest victim of a supermarket sell-off which has also hammered Sainsbury’s and Morrisons. The UK’s biggest players are struggling to defend their margins against the likes of discounters Aldi and Lidi in a climate of falling food prices.
Tesco’s estate of vast out-of-town superstores has also been left exposed by under-investment and the move towards online shopping.
Woodford told the BBC today: “Clearly I didn’t anticipate the type of problem that has come out this week, but there are many structural and cyclical challenges and this is the problem.
“When cyclical problems are overlaid with structural problems, the solutions tend to be much more difficult and longer term.
"The industry, in my view, faces a long road to exit this period of depressed margins and crushed profitability — and maybe asset bases and balance sheets have to be rebalanced, before the industry can re-emerge as an investable proposition. The immediate future is going to be very tough for the sector but particularly for Tesco.”
Tesco’s horror week came as Sainsbury’s revealed it had been quietly cutting prices across its range of 12,000 products to keep up with the price war engulfing the industry. Its own trading update next week is expected to see a sales drop of about 3 per cent.
The UK’s third biggest supermarket chain has seen recent sales falls, according to Kantar’s industry data, although analysts suggest the declines are more likely to be due to prices falling, leading to less cash coming through its tills, rather than customers deserting the stores.Reuse content