While broadly in line with expectations, there was little in the way of future plans and the group took the decision not to give any profit guidance, as a result of the ongoing FCA investigation at the firm.
For the half year, Tesco group sales fell 4.4% to £34.0bn, while group trading profit was £937m, down 41% on last year’s comparable period.
According to the food retailer, this was largely due to a continued weakening of the UK grocery market, investments into its customer offering and challenging operating conditions in its offshore businesses.
Underlying profit before tax fell 46.6% to £783m.
According to Tesco CEO, Dave Lewis, as a result of the tough trading conditions three immediate priorities are clear: “to recover our competitiveness in the UK, to protect and strengthen our balance sheet and to begin the long journey back to building trust and transparency into our business and brand."
While all of these are admirable goals that shareholders would welcome, the lack of detail means investors remain uncertain as to the likelihood of success
According to Brewin Dolphin’s Nik Stanojevic: “The lack of any strategy announcement is disappointing and management did not set a date for the strategy day. We might have to wait until the third quarter IMS or even as late as the full year results to get any news on this front.”
The Share Centre added: ““Fierce price competition and promotions are likely to remain a squeeze on margins for some time and in light of the absence of an articulated strategy we recommend a 'hold' for investors who believe the new management can turn things around. However, we believe new investors should stay on the side lines for now.
Stanojevic added: “While they are trading slightly below our DCF valuation of 174p (which we view as conservative), while the company has no strategy and while the accounting issues are still outstanding, they could trade lower still. We are also concerned with company stating that it may need to protect and strengthen the balance sheet.
While a great deal of uncertainty remains around the business, what is definite is that Tesco continues to face a number of headwinds, particularly on pricing, but in this it is not alone.
The announcement comes on the same day as the Office of National Statistics released retail sales figures for September, which showed continued downward pressure on prices across the retail space.
“According to the figures, Average store prices (including petrol stations) fell by 1.4% in September 2014 compared with September 2013. This was the largest fall since July 2009,” ONS said.
But, it added, while the largest contribution to the fall came from petrol stations, where prices were down by 5.4%, prices at food stores fell by 0.3%, the largest fall since December 2004.
