Woodford: Tesco's woes run deeper than the consumer squeeze

Neil Woodford, head of investments at Invesco Perpetual, has warned that Tesco's woes run deeper than just the squeeze on consumer spending, as the supermarket gets set to report its lowest profit growth in seven years.

Woodford (pictured), who until recently had held the stock across his portfolios for some 20 years, said he fears the grocery giant has not made the most of its grand expansion plans and is worried its rivals may seize the opportunity to steal back market share.

The fund manager said that until recently he believed that supermarkets like Tesco had strong defensive qualities and would prove resilient to the squeeze on household spending.

But now he is concerned that wider difficulties may be having an impact on the business, particularly after previous shareholder reports exposed signs of fragility.

Writing in a column in the Telegraph Woodford said: 'Tesco's Christmas trading update earlier this year suggested I may have placed too much confidence int he business' ability to cope with the economic headwinds.

'Tesco's problems are, in my opinion, not just down to the difficult consumer environment.  With the benefit of hindsight it has become clearer to me that some of the company's investment decisions in recent years have not created the value they should have.'

Woodford, who runs the Invesco Perpetual Income and High Income funds as well as the closed-end Edinburgh Investment Trust, began selling out of the stock in February and said that in the past few days he has offloaded his holding entirely.

Woodford said he had redistributed the proceeds across other stocks core to his portfolios.

The shrewd fund manager's concerns come as Tesco boss Philip Clarke prepares to post a dismal set of figures to investors.  Tesco's latest numbers are expected to reveal the slowest rate of profit growth seen at the supermarket chain in seven years, with annual profits expected to come in at around £3.64 billion.

This represents an increase of just 2.8% on the previous year's numbers, analysts said.

Tesco has in recent years moved into non-food retailing and has built larger stores in order to house its increased product range.  But its UK business, which accounts for roughly two thirds of the group's profits, is still suffering despite this diversification, its results are expected to show.