Short sellers have added to their positions in Tesco in the wake of its CEO’s departure, in a market where many of its competitors also continue to see high demand to borrow.

• Tesco sees 6% higher short interest than it did a week ago
• Fellow retailers Morrisons and Sainsbury’s continue to see high short interest
• Marks and Spencer sees highest short interest in over 12 months

The latest chapter of the ongoing struggle for a piece of the UK grocery basket took another dramatic turn this week when Tesco CEO Philip Clarke announced his departure after a string of profits warnings. Investors seem unimpressed by this turn of events, and the firm has seen its short interest rise as its shares fell to new ten year lows.

Tesco shorts continue to climb

Short interest as measured by the proportion of Tesco shares out on loan has climbed in the wake of Clarke’s departure. Current demand to borrow Tesco shares is up by 6% as of latest count compared to the level seen a year ago. While short interest is still relatively low compared to average at a 2.6% of shares outstanding, the firm’s latest string of disappointing results has ensured that the demand to borrow is five times higher than it was 12 months ago.

Whether short sellers will continue to add to their positions to take the firm’s short interest to a new three year high remains to be seen, but shares are currently trading 6% lower than the previous short interest high seen in March when 3% of Tesco shares were out on loan.

Grocer peers also shorted

Tesco’s struggles are not isolated as both its smaller FTSE 100 listed competitors, Sainsbury’s and Morrisons, have seen sustained short interest in the last few months as competition from German discounters and pound shops have seen budget conscious customers head elsewhere. This comes despite the fact that overall retails sales have proven buoyant over the last six months. Retail volumes were up by 4.1% in the first half of the year, the largest surge in a decade according to newly released data by the Office of National Statistics.

This poor result has cemented the two firms at the top of the most shorted list, with Sainsbury’s and Morrison currently ranking second and fourth in the list of most shorted FTSE 100 constituents.

As for the competition, newly listed Poundland has not seen much in the way of short selling as the firms has less than 1% of its shares out on loan.

Marks and Spencer also targeted

Another development over the last few weeks has been a renewed interest to short Marks and Spencer. While the firm had been relatively isolated from the struggle at the midrange of the market owing to its relatively high end product mix, the firm’s less glamorous non-food general merchandise proved to be a drag on results as sales in this division fell by 1.5% in the three months ending in June.

As a result, short interest has risen to over 2% of shares outstanding for the first time in over a year.

Note that Marks and Spencer is pinning its general merchandise strategy on a revamped website in which the firms has invested over £150m.

Although Marks and Spencer did stumble when it first rolled the site out, the fact that a deep pocketed competitor is looking for its share of the online clothing market will no doubt spur on short sellers in ASOS which has so far been the dominant player in that space. ASOS short interest is now back up to the levels seen two years ago, after a string of setbacks has seen its shares have from their highs in February.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.