By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- Tesco PLC shares sank to their lowest
level in 14 years Tuesday, leading losses on the FTSE 100, after
the supermarket chain issued its fourth profit warning.
The FTSE 100 fell 1% to 6,607.47, with no sectors trading
higher. Worries that China will cut its growth forecast were
hitting shares of commodity producers.
Tesco shares were down 10%, wiping off roughly $1.6 billion from
Tesco's market capitalization. The shares had fallen as much as 17%
to trade at lows not seen since February 2000, according to FactSet
data. The selling was triggered after the supermarket chain cut its
full-year profit forecast, citing investments it's making in its
business as it battles rivals. Group trading profit will not exceed
1.4 billion pounds ($2.2 billion), said Tesco. The projection
compares with analysts' expectations of GBP1.94 billion.
"If there had been hope that the market would be immune to yet
another profit warning, this quickly evaporated, as Tesco has
provided profit guidance which is nearly 30% shy of an already
lowered estimate," said Richard Hunter, head of equities at
Hargreaves Lansdown Stockbrokers, in a note.
Tesco's recovery in the U.K. "could take longer" as Chief
Executive Dave Lewis needs to simplify the business through U.K.
and international asset sales, change payment terms with suppliers,
lower the cost of goods and "start on the long road to rebuilding
the Tesco brand with shoppers," said Mike Dennis, an analyst
covering food and general retail at Cantor Fitzgerald, in a
note.
Tesco rivals were also lower following the profit warning, with
Wm Morrison Supermarkets PLC down 4.3% and J Sainsbury PLC
declining 3.6%. Marks & Spencer Group gave up 0.6%.
Ahead of the open of European trade, Chinese state media
reported that the government might cut its 2015 growth target to as
low at 7%, down from the 2014 goal of about 7.5%. China's top
leadership is meeting for the annual Central Economic Work
Conference in Beijing.
Chinese stocks, which have been soaring recently, dropped
sharply, leaving the Shanghai Composite down more than 5%, with the
moves appearing to stem from a new rule that tightens the use of
corporate bonds as collateral for short-term financing.
In the mining group, shares of BHP Billiton PLC (BHP) lost 1.9%,
as did shares of Rio Tinto PLC (RIO). Among energy issues, Tullow
Oil PLC declined 1.5% and oil-services company Petrofac fell 3.3%.
Oil prices (CLF5) remained under pressure, trading at five-year
lows.
"Unless investors close [U.S. dollar] positions in the run-up to
Christmas, or the [People's Bank of China] add further stimulus to
its economy in the coming weeks, it appears unlikely the oil
markets will enter a correction period anytime soon," said Jameel
Ahmad, chief market analyst at FXTM, in a note Tuesday.
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