Bloomberg News

U.K. Stocks Drop for Second Day as Tesco Sinks on Profit Outlook

January 12, 2012

Jan. 12 (Bloomberg) -- U.K. stocks retreated for a second day as retailers tumbled after Tesco Plc reported Christmas sales that missed estimates and data on U.S. retail sales and jobless claims were worse than forecast.

Tesco plunged 16 percent, the most since at least 1988, after Britain’s largest supermarket chain also lowered its profit forecast. J Sainsbury Plc and William Morrison Supermarkets Plc both tumbled more than 5 percent.

The benchmark FTSE 100 Index fell 8.4, or 0.2 percent, to 5,662.42 at the close in London, even as two stocks gained for each that fell. The broader FTSE All-Share Index was little changed, while Ireland’s ISEQ Index slid 1 percent in Dublin.

“Doom and gloom within the retail sector has driven stock markets lower today,” said Angus Campbell, head of sales at Capital Spreads. “Investors don’t like seeing a massive bellwether stock like Tesco issuing profits warnings and it’s always going to have a knock on effect for the wider market.”

Stocks extended losses today after separate reports showed more Americans than forecast filed applications for unemployment benefits last week, while sales at U.S. retailers rose 0.1 percent in December, missing the average economist forecast for a 0.3 percent gain.

The Bank of England refrained from adding to emergency stimulus today as policy makers await new forecasts and the economy showed some resilience heading into 2012. The Monetary Policy Committee maintained its bond-purchase target at 275 billion pounds ($421 billion), which was forecast by all but one of 41 economists in a Bloomberg News survey.

Tesco Slides

Tesco had the biggest drop in the FTSE 100, sinking 16 percent to 323.45 pence after the retailer said full-year profit will be at the “low end of the current consensus range” and next year will see “minimal” growth in earnings. U.K. sales at stores open at least a year dropped 2.3 percent, excluding fuel and value-added tax, in the six weeks ended Jan. 7. That fell short of the median estimate of 10 analysts compiled by Bloomberg for a 1 percent decline.

Rival supermarket chains declined. Sainsbury retreated 5.4 percent to 285.9 pence and Morrison tumbled 6 percent to 285.9 pence. Marks & Spencer Group Plc, Britain’s largest clothing retailer, slipped 2 percent to 315.6 pence.

Home Retail Group Plc dropped 4.9 percent to 83 pence after the owner of the Argos and Homebase chains forecast a drop in annual profit as holiday sales slumped and said it plans a “significant” dividend cut.

Ocado Gains

In contrast, Ocado Group Plc soared 33 percent to 74 pence after revenue at the U.K.’s largest online-only grocer accelerated in the Christmas season led by sales of its own- label items.

Elsewhere, Royal Bank of Scotland Group Plc led a gauge of U.K. lenders higher as the cost for European banks to borrow in dollars eased to a four-month low.

RBS jumped 5.6 percent to 23 pence. Britain’s biggest government-owned lender said it will cut 3,500 jobs at its investment bank over the next three years and will either sell or close its cash equities and mergers advisory operations along with its corporate broking and equity capital markets units. The lender said it’s in talks with “a number” of buyers for the division.

Lloyds Banking Group Plc rallied 3.5 percent to 29.15 pence, Barclays Plc increased 1.7 percent to 193.45 pence.

Mining Companies Gain

Vedanta Resources Plc led copper producers higher, gaining 4.7 percent to 1,064 pence. Kazakhmys Plc added 2.4 percent to 1,051 pence and Antofagasta Plc rallied 2 percent to 1,307 pence. Copper rose on the London Metal Exchange after figures showed Chinese inflation cooled to a 15-month low, adding to speculation the government may have room to ease monetary policy to help spur growth.

Elsewhere, Ashmore Group Plc advanced 4.6 percent to 340.8 pence after the fund manager reported a 2.5 percent gain in assets under management for the second quarter to $60.4 billion.

Provident Financial Plc climbed 4.8 percent to 995.5 pence after the company said it expects full-year earnings to be in line with estimates. Keefe, Bruyette & Woods raised its recommendation for the lender to “market perform” from “underperform,” while Numis Corp. upgraded the shares to “buy” from “hold.”

Barratt Developments Plc jumped 11 percent to 107.2 pence after the U.K.’s largest homebuilder by volume reported an 8 percent gain in first-half revenue to about 950 million pounds as the average price of its homes rose.

Rival Persimmon Plc increased 3.4 percent to 516.5 pence and Taylor Wimpey Plc advanced 2 percent to 39.54 pence.

--With assistance from Peter Levring in Copenhagen. Editors: Andrew Rummer, Srinivasan Sivabalan

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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