UPDATE: Tesco’s New CEO Sets Out Revamp Plan, As Sales Decline Slows

Alliance News
  • January 8th, 09:00
  • Last Updated: October 10th, 12:27

**UPDATE: Tesco’s New CEO Sets Out Revamp Plan, As Sales Decline Slows **
LONDON (Alliance News) – Shares in Tesco PLC jumped Thursday after new Chief Executive Dave Lewis announced a raft of new measures that he hopes will put the struggling supermarket chain back on track, reign in costs and help rebuild its damaged reputation after an horrendous last few months that included a profit overstatement.

In a trading update, which also revealed a 2.9% decline in like-for-like sales excluding fuel for its UK business for 19 weeks to January 3, Tesco announced a significant cost-efficiency programme including cutting UK central overheads by around 30%, and plans to reduce capital expenditure to GBP1 billion in the coming financial year. It said it will not pay a final dividend for the current financial year.

“We are trying in reinvigorate our model and restore the financials of the business,” Lewis told journalists.
News of the measures sent Tesco shares 5.3% higher Thursday morning at 191.55 pence, one of the best performing stocks on the FTSE 100. Its shares plummeted in 2014, and it was the second-worst performing stock in the blue-chip that year. Its shares are still down 41.7% over the past 52 weeks.

“The investments we are making in service, availability and selectively in price are already resulting in a better shopping experience. A broad-based improvement has built gradually through the third quarter, leading to a strong Christmas trading performance,” Lewis said in the company’s statement, highlighting that Europe returned to positive like-for-like sales growth of 1% in the last six weeks of the period.
“We have some very difficult changes to make. I am very conscious that the consequences of these changes are significant for all stakeholders in our business but we are facing the reality of the situation,” he added.
In the UK, Tesco said it will be closing 43 various unprofitable stores, consolidating head office locations, restructuring central overheads and simplifying its store management structures – all of which it said will deliver savings of around GBP250 million a year, which will cost a one-off investment of around GBP300 million to achieve. It said it is also pulling out of plans for planned future developments, with Lewis stating that the retailer “can’t afford to do some things it had previously planned to do”.
It will close its Cheshunt headquarters in 2016 and make Welwyn Garden City the UK and Group centre. Lewis said it was a “commcerically savvy” thing for the retailer to do, consolidating its head office locations into one.
“We are trying to reduce costs in our [UK] overheads by around 30%,” said Lewis, who did not go into further details about the approximate number of job losses or any further details on store locations or formats for the closures.
Tesco has also appointed the CEO of Halfords Group PLC, Matt Davies, as the new CEO of its UK and Ireland business, with effect from June 1.
Tesco also announced that it is selling its Tesco broadband and Blinkbox businesses to telecoms company TalkTalk Telecom Group PLC.
It said it also exploring “strategic options” for its Dunnhumby data collection business, which includes its Clubcard data set, and is exploring further initiatives for its other assets.
“The funding of the group is good and the liquidity is strong, so there is not the pressure to do anything hasty here. We are talking about doing value accretive things for our shareholders,” said Lewis.
Tesco, which is Britain’s biggest supermarket chain, is still reeling from an accounting error towards the end of last year, and its fourth profit warning last month in just five months, when it said its full year profit this year would be less than half the one it made the year before. The grocer blamed its last profit warning on investments it is making as part of its latest turnaround plan and its efforts to re-set its relationship with suppliers. Four of its executives are still suspended relating to the investigation into the accounting scandal.
Tesco said again Thursday that it is “regenerating” relations with its suppliers by introducing new commercial income guidelines.
“Our new commercial approach includes a comprehensive review of product ranges to simplify them, reset prices and improve availability. We are increasing shelf capacity for our 1,000 bestselling lines resulting in significant improvements in product availability, particularly in the evenings,” it said.
Tesco said it is still sticking by its group trading profit guidance of no more than GBP1.4 billion for the current financial year.
“The immediate priority for proceeds from the new level of financial discipline and cost control will be reinvestment in our core customer proposition,” the company said in Thursday’s statement.
Group sales for the 19 weeks to January 3 declined by 0.6% at constant rates, including fuel and 1% excluding fuel. At actual rates, sales declined by 1.9% including fuel and by 2.3% excluding fuel.
On a like-for-like basis, group sales for the 19 week period were down 2.7%, with a 4.6% fall in Asia sales.
Breaking down the 2.9% decline in UK like-for-like sales, excluding fuel, over the 19 week period – sales were down 4.2% in the third quarter, but declined only 0.3% over the six-week key Christmas trading period. That is worse that rival J Sainsbury PLC, which Wednesday reported a 1.7% decline in like-for-like sales in the 14 weeks to January 3, excluding fuel.
Tesco said customers were welcoming the improvements it is making in its stores.
“The encouraging response from customers follows the investments we have made across the store offer. We have seen strong improvements in satisfaction with prices, availability, queues and store standards following the introduction of more than 6,000 new colleagues in customer-facing roles in store,” Tesco said.
Europe’s return to sales growth in the last six weeks is also a welcome respite for the grocer.
Ahead of Thursday’s trading update by the supermarket chain, Tesco announced a slew of price cuts on branded products. The price cuts see an average price reduction of 25%, including on products from Hovis, Coca-Cola, Marmite and Tetley.
That came only two days after Sainsbury’s and Asda announced their own cuts, as the big supermarkets slash prices in order to compete with discount rivals Aldi and Lidl. Yet Tesco Chief Dave Lewis would not detail how much it was investing on the latest bout of price cuts, despite Sainsbury’s and Asda revealing a combined total of GBP450 million on further price cuts.
“For a man parachuted onto the bridge of a sinking ship, Dave Lewis has set about the task of plugging the leaks with aplomb,” says Phil Dorrell, director of the retail consultancy Retail Remedy. “For UK like-for-like sales to have fallen by 0.3% over the Christmas period seems almost like a victory.”
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
Copyright 2015 Alliance News Limited. All Rights Reserved.

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