Supermarket shares hammered as Tesco cuts dividend by 75%

Another RNS and another shock profits warning from Tesco sending its shares down 7% to below 230p. Sainsbury is also down 4.5% to 290p and Morrisons is down 3% to 180p. The supermarket sector as a whole has been battered in the last 12 months with tepid industry sales growth and the discounters such as Aldi and Lidl throwing a spanner in the works with significant share gains.

The departure of Tesco’s chief executive Philip Clarke was announced in July which coincided with another profit warning in July. His successor Dave Lewis will now start next week, one month earlier than expected.

Tesco said it had revised its outlook and now expected trading profit for 2014/15 to be in the range of £2.4 billion to £2.5 billion, compared with previous expectations of £2.8-3.0 billion. The big sting for income investors was the cut in the interim dividend at 1.16p, down 75%.

Earlier in the week, Kantar reported that sales in the three months to August 17  dropped 4% and Tesco’s share of the grocery market fell to 28.8% from 30.2% a year ago.

Dave Lewis will be reviewing every aspect of the group’s operations over the coming months and for now things are pretty bleak with the company being forced to cut capital spending by £400 million which will impact its store refurbishment programme. At least with the question of the dividend now firmly answered, Dave Lewis can focus on operational issues and perhaps focusing on fixing one or two things well rather than Philip Clarke’s try to fix everything at the same time management style which didn’t work. The supermarket sector is certainly in turmoil right now with no easy solutions as a result of the ongoing consumer behaviour shifts.

Contrarian Investor UK

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