What’s Going On Here?Tesco will be glad it stocked up on toilet paper when it had the chance: the UK’s biggest grocery chain reported annual results on Wednesday, and its stock fell 2%. What Does This Mean?Given that Tesco’s financial year ended in February, Wednesday’s update didn’t have much to say about the issue investors care about most: coronavirus. But the grocery chain did reveal its UK sales had recently risen 30% as consumers stockpiled food and essentials ahead of impending lockdown measures. The company also estimated it’d need to spend as much as $1.1 billion in additional staff wages and store costs, though it reckons the increased sales of food between now and August – when it hopes Britain will have returned to normal – should cover most of that bill. Why Should I Care?For markets: Risks on aisle four.
One likely effect of Tesco’s tasty food sales is a lower profit margin, since the grocer typically earns less selling food than it does goods like clothes (whose sales have dropped). That seemed to concern investors, who pushed Tesco’s shares down on Wednesday. But they might've been more on the fence about the company’s bigger-than-expected dividend announcement, which Tesco argued is long overdue for investors who didn’t receive any payments in 2016 and 2017 following an accounting scandal. That may be, but it also leaves less cash in the bank if coronavirus proves more damaging than expected.
The bigger picture: Cash on aisle five.
Some companies in more precarious positions have rushed to raise money from new and existing shareholders. Case in point: ASOS, whose stock rose almost 30% on Wednesday after the online fashion retailer sold $300 million of new shares (tweet this). It had been unnervingly low on cash partly because of recent warehouse investments and partly because of the recent slowdown in consumer spending. But with this pick-me-up, investors were probably more confident it’d now survive the pandemic. | 