Sector movers: Grocery stocks tank after yet another profit warning from Tesco

9th Dec 2014 15:20

Another profit warning from Tesco shattered already-fragile sentiment in the supermarket sector on Tuesday with grocery stocks falling sharply.Tesco's shares were down 7.4% at 173.4p in afternoon trade, having dropped as much as 16% early on, after the retail giant surprised the market with an unscheduled trading update.Tesco has now said that on the back of changes and investments made recently to improve customer service and implement new procedures, trading profit for the financial year ending February 2015 is not expected to exceed £1.4bn. This compares with a figure of £3.315bn the year before and analysts' forecasts which ranged from £1.8bn to £2.2bn.A number of profit downgrades, an accounting scandal and several senior-management changes have hammered the shares since the start of 2014, with the year-to-date fall now close to 50%."The implication of today's update, in our view, is that it is clear that Tesco's new management team is willing to take a period of significantly lower profitability, and even losses in the UK, to move Tesco to a more sustainable footing," said analysts at Shore Capital.However, they said that with a lack of visibility ahead of Tesco's 8 January update - in which the company plans to unveil its longer-term strategy - "we continue to see the mainstream grocers as largely un-investible".Shares in rival supermarket chains Wm Morrison and J Sainsbury were also lower, though the latter had almost erased earlier losses by the afternoon.Sainsbury's shares were being somewhat supported by recent speculation that the company has attracted the interest of activist investors. The Sunday Telegraph said Crystal Amber is looking to build a stake "as part of a bold plan that could see an attempt to engineer a takeover of the supermarket giant".However, speaking on Tuesday, analyst David Madden from IG said: "International bidders may hold fire on the UK supermarket market sector until the Christmas figures are released in the New Year."Online grocer Ocado was also feeling the heat on Tuesday , along with convenience store chain Conviviality Retail and high street bakery group Greggs. Top performing sectors so far todayChemicals 11,103.12 +0.69%Industrial Metals & Mining 1,410.64 +0.65%Oil & Gas Producers 7,097.46 +0.22%Industrial Transportation 2,663.61 +0.01%Bottom performing sectors so far todayFood & Drug Retailers 2,622.21 -4.90%Pharmaceuticals & Biotechnology 12,816.94 -3.01%Automobiles & Parts 8,045.28 -2.77%Mobile Telecommunications 5,052.94 -2.54%Health Care Equipment & Services 6,171.49 -2.41%