Shares in Tesco plunged to an 11-year low in early trading as the City deserted the supermarket giant after its second profit warning in just over a month threatened to wipe out a decade of UK profit growth.
The country’s biggest supermarket fell as much as 10 per cent after cutting its interim dividend by an unprecedented 75 per cent, potentially removing £800 million from the company’s £1.18 billion dividend pot.
Tesco said it now expected group profits, which include its struggling overseas businesses, to be between £2.4 billion and £2.5 billion — a fall of around 12 per cent compared with last year.
Most of the problems appear to be in the UK, with analysts suggesting that profits here could drop by 21.5 per cent this year to £1.72 billion — levels not seen since 2005.
Chairman Sir Richard Broadbent today summoned new boss Dave Lewis, who joins from Unilever, to start on Monday, a month early, and also vowed to cut spending by at least £600 million this year — £400 million more than originally planned.
Tesco shares made a small recovery from their early dive but were still off 6.1 per cent at 231.1p, while its rivals across the grocery sector also plummeted — Sainsbury’s fell 4 per cent to 291p, Morrisons dropped 3.6 per cent to 180p and Marks & Spencer dipped 2.6 per cent to 426.4p.
Broadbent said: “The board’s priority is to improve the performance of the group. We have taken prudent and decisive action solely to that end.”
Lewis, he said, “will be reviewing every aspect of the group’s operations,” adding: “The actions announced today regarding capital expenditure and, in particular, dividends have not been taken lightly.”
Capital spending will now be £2.1 billion and cuts will take place in its IT business, and — in a sign that sacked boss Phil Clarke’s store refreshes were failing — the roll-out will be slowed.
Several analysts suggested there could be more pain ahead for Tesco.
Cantor Fitzgerald’s Mike Dennis said: “It seems Tesco have taken the same route as Sainsbury’s did in 2005 when Justin King halved the dividend and margins. The question is how far lower might the UK trading margin go?”
Shore Capital’s Darren Shirley said: “It is very disappointing to see this update, which fundamentally raises questions about the capability of the management under Mr Clarke.
"As such, we expect... there to be considerable senior management change under Mr Lewis in time, as Tesco needs a world class top team to take it forward.”