Martin Flanagan: Liner’s not holed but waters unusually choppy

THE City has got used to Black Mondays and Black Wednesdays (courtesy of the wobbly Wall Street‑induced panic and Britain’s ejection from the European Exchange Rate mechanism, in 1987 and 1992 respectively)

Perhaps yesterday will become known as Tesco Thursday. The day when the jig was finally up for the retail sector’s sunlit place in the stock market’s affections.

Tesco has been an investor darling for the thick end of two decades now, nearly all of it under the tenure of former chief executive Sir Terry Leahy.

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But successor Philip Clarke has a distressing tale to tell. For the first time in a generation, Britain’s biggest retailer put out a profits warning yesterday. Tesco’s share price crashed 16 per cent and several billions pounds were wiped off the high street and out-of-town retail icon’s market value.

Unsurprising: the group’s festive sales, excluding booster rockets such as fuel and VAT, were pretty appalling, at a negative 2.3 per cent. Even with the tailwind of VAT included, they were off 1.3 per cent.

It was not so much a case of Every Little Helps, as Everything Yelped. For a company that has been seen as virtually able to walk on water between its strong operations in the UK and profitable Asian arm (not to mention US business Fresh & Easy despite that subsidiary taking the scenic route to profitability) it was strong meat for the City to digest.

Clarke is trying to put a brave face on it, or whistling in the darkened aisles depending on one’s degree of doubt. He says there is much more Tesco has in its locker to make things better, but the glaring lack of specific detail does him few favours.

Currently, strategy seems to be little more than a continuation of the Big Price Drop discounting campaign the company has launched with limited visible success, largely knocking hypermarket-openings on the head, and putting in an unquantified amount of new investment this year into shrouded customer-friendly initiatives.

The supermarket giant’s neatest trick for many years has been to be a massively dominant high street supertanker still capable of turning on a dime to weather both good and bad trading conditions.

Its biggest problem each year has been to outstrip previously strong comparatives to keep its name sweet with the stock market. And it has pulled it off.

The question now is whether this is a downturn too far, and that the company, still highly profitable, has been shown to be mortal amid what one of its rivals, Morrisons, has called the worst trading backdrop for supermarkets for a generation.

Unused to the phenomenon, undoubtedly, Tesco must now live over the next year or more with the jury being out on its prospects.

Further executives departing the ship on top of the flurry recently announcing their retirements would damage market sentiment further. Ditto continued excuses that Fresh & Easy is suffering from a recuperating US economy and will come good.

Any unexpected shocks at its Asian or eastern European operations would also be destabilising. With perspective, Tesco remains a retailing ocean liner and is far from holed below the waterline despite sliding sales. But it is in choppy waters that it hasn’t experienced for a long, long time.

Latest price cuts could energise the market

CHRISTMAS has come late for Britain’s energy consumers. SSE, formerly known as Scottish & Southern Energy, and Scottish Gas-owning Centrica, has joined EDF Energy in cutting or capping gas and electricity prices. It’s enough to warm the cockles of the heart, and is a welcome relief for household budgets under real pressure in the downturn.

The moves by the three groups, driven by a fall in wholesale energy prices partly due to the mild winter weather and Britain’s sputtering economic recovery, raise the pressure on the other three big energy companies – ScottishPower, E.ON and RWE npower – to do likewise.

Energy groups, like many industries from retailing to Big Pharma, move in herds.

They cannot afford on either commercial or public relations grounds to let rivals steal a march without repercussions, including customers voting with their feet.

It will be a major surprise if the laggards don’t make similar price cutting announcements shortly.