UK: Stemming tide of decline a priority for Tesco
Tesco revealed a combination of “challenging trading conditions” and “ongoing investment” in its customer offer
Stemming the tide of decline in the core has to be the priority for Tesco, analysts believe, after the UK retailer today (29 August) issued another profit warning and said incoming CEO Dave Lewis will take up his new role a month early.
Share plummeted nearly 8% in early trading after Tesco revealed that a combination of "challenging trading conditions" and "ongoing investment" in its customer offer meant full-year forecasts had to be cut for the third time this year.
The retailer now expects trading profit to be in the range of GBP2.4bn to GBP2.5bn, down from GBP2.8bn previously. Tesco is also cutting its dividend by 75%.
In addition, Tesco is reducing capex for the current financial year, to no more than GBP2.1bn. This is GBP400m less than planned and GBP600m less than last year. IT will be affected and the retailer's store refresh programme will be slowed.
New chief executive Lewis will take the helm from Monday, having had his start date brought forward from 1 October.
ShoreCap analayst Darren Shirley said it is possible to speculate but not predict what his priorities will be.
"As such, we should also respect the fact that he needs time to assess matters and manage the business. Hence, whilst this update is unhelpful, it does not adjust our view that Tesco UK needs fundamentally better management and that this is a group where the pint can still be more than half full. In time Mr Lewis may also have views on the make-up of Tesco but stemming the tide of decline in the core has to be the priority."
In its update, Tesco said the business continues to face "a number of uncertainties", including market conditions and the pace at which benefits from the investments it is making flow through in the second half.
The retailer said that, on his arrival, Lewis will be reviewing all aspects of the group in order to "improve its competitive position" and "deliver attractive, sustainable returns for shareholders".
Chairman Sir Richard Broadbent, added: "The board's priority is to improve the performance of the group. We have taken prudent and decisive action solely to that end. The actions announced today regarding capital expenditure and, in particular, dividends have not been taken lightly. They are considered steps which enable us to retain a strong financial position and strategic optionality."
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