Unfortunately, this descent has been matched by Tescos earnings per share, which fell by 47% during the first half of this year, compared to the same period last year.
A grim year
Tescos like-for-like UK sales fell by 4.8% during the first half of the year, and the group recently issued its fourth profit warning in 12 months, cutting its guidance for full-year trading profit (adjusted operating profit) to just 1.4bn, 500m lower than previous guidance of 1.9m.
The appointment of new chief executive Dave Lewis also triggered the discovery that Tesco had overstated its first-half profit guidance by 263m, triggering an investigation by the Serious Fraud Office.
As a result of the management clear-out that followed this scandal, Mr Lewis is currently running the firms UK business himself, while Tesco searches for an external hire to run its UK operations.
I suppose cash is tight?
Tescos net gearing is now an uncomfortably high 66%, and most City analysts believe that Tesco will either have to hold a rights issue or sell off some of its overseas assets in 2015, in order to strengthen its balance sheet.
Well find out more on January 8, when Mr Lewis has promised to unveil his recovery plan alongside the firms traditional post-Christmas trading update, which should be interesting.
Will there be more bad news?
I suspect there will be one more round of bad news in the New Year.
The final dividend could be cancelled, and I think Tesco is likely to declare a large, non-cash impairment on its property portfolio, to reflect the reduced value of undeveloped sites.
Buy, sell or hold?
Lets put Tescos situation in context: Tesco has a 30% share of the UK grocery market and is the UKs largest supermarket. Global sales are expected to total about 61bn this year, on which it will make a profit of around 1bn.
This isnt the end of Tesco. Although supermarket profit margins are undoubtedly falling, I believe that there is an attractive business within Tescos UK operations, especially as the firm is one of the leaders in the fast-growing convenience and home delivery markets.
Tesco now trades on around 13 times 2015/16 forecast earnings, which isnt cheap. A further dip is possible, but I think were near the bottom, and rate the shares as a long-term buy.
Unfortunately, many Tesco shareholders will have been hit hard by this year’s massive dividend cut.
Spotting such cuts in advance isn’t always possible, but in Tesco’s case, the writing was on the wall, and shareholders concerned about income could — and probably should — have sold out earlier this year.
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