Supermarket Sweep

Tesco reported results

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What's going on?

Tescos update on Wednesday was a two-for-one special: the UKs largest grocery chain announced strong half-yearly results and the departure of its much-lauded CEO.

What does this mean?

Tescos CEO took the job five years ago, back when the grocery giant was under pressure to reduce product prices in the face of rival discount chains. His first task was to clean up the mess from the companys 2014 accounting scandal, after the company took its famous slogan Every little helps a bit too far.



Fast-forward to Wednesday, though, and Tesco reported a 25% higher profit for the last six months than the same time last year, as well as a 60% higher dividend. Crucially, its profit margin for the period was 3.7% bang in the middle of the CEOs 3-4% target. Job done, he probably said with a wry smile, before etching his resignation on a milk carton.

Why should I care?

For markets: Wakey wakey, active traders.


Active investors who aim to outperform markets will now wait to hear the new CEOs plans. It remains to be seen what effect those plans will have on Tescos shares, which have outperformed the UK stock market by more than 30% since the end of September 2014. Active investors decisions will also impact passive investors, who follow a particular group of UK or global stocks via, for example, exchange-traded funds and whose investments will probably be affected by Tesco, since it represents over 1% of the British market.



For you personally: Dont throw the baby out with the bathwater.


Professional analysts will now assess Tesco and recommend whether professional investors should buy its shares but they only get it right about half the time. Retail investors might be even more cautious: its riskier owning a single companys stock than several, so its worth waiting for the new CEOs update before taking any action.

Originally posted as part of the Finimize daily email.

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