British retailer Tesco’s (LSE:TSCO) stock tumbled Wednesday despite improvements in the UK market, while uncertainties over Brexit have recently spurred significant shifts in the sector.
Shares of Tesco plunged after the company revealed losses related to its Central European and Asian operations.
In the first half of 2018/19, the firm said like-for-like (LFL) sales in Central Europe fell 1.5%, driven by Sunday trading regulations, and in Asia, LFL sales dropped by 7%, due in large part to adverse impacts from brand repositioning and investment in Thailand.
Tesco said it expects the adverse impacts in Asia will continue in the second half, as it struggles to compete in the Thai market.
Following the news, the company’s stock plunged more than 8.5% intraday Wednesday to £215.10, with its American Depositary Receipts (ADRs, TSCDY) last quoted down around 8.45% to just south of US$8.34, according to the IBKR Trader Workstation.
The firm’s first-half financial performance fared better in its local markets, including a 3.8% rise in UK and Irish LFL sales, which stepped-up from 3.5% in Q1 to 4.2% in Q2.
While Tesco also paired down its debt obligations by more than 4% to roughly £3.13bn, the yield on its 6.15% notes due November 2037 shot up to a 52-week high of 5.795% — a rise of a little more than 46bps since late January.
Shifting landscape
Along with other UK food retailers, including Sainsbury’s (LSE:SBRY) and WM Morrison Supermarkets (LSE:MRW), Tesco has been battling against intensified domestic competition – notably from hard discounters such as Aldi and Lidl.
According to analysts at global advisory firm Deloitte, while consumer confidence in the UK has risen, growth in spending has slowed, and although inflation has fallen as expected, so has wage growth – “meaning that there has been no easing of pressure on consumers.”
However, a jump in online sales appears to have helped the sector, amid a rash of brick-and-mortar store closures, and overall retail activity has been generally stable – defying expectations for weather-inspired erosion.
