Tesco Profit Warning Announced

January saw Tesco issue it’s first profit warning in 20 years. The news was followed immediately by a 16% drop in the company’s share price, underlining the dip in investor confidence. 

Tesco reported lower than expected sales in December and its poor trading performance was further hampered by excessive discounting in the run up to Christmas.  It was only last year that Tesco was regarded as the UK’s most successful supermarket. The company’s fortunes have declined due to a combination of the recession and the growth of cheap competition in the form of Aldi, Lidl and Costco. Tesco has also failed in its attempts to expand into overseas markets with the Fresh & Easy brand being particularly unsuccessful in the US. Nevertheless, we feel that Tesco’s attempts to break into mortgages are very exciting and will be interested to see how they develop in 2012. The company could well be undervalued. Watch this space.