Tesco issues new profit warning
London, August 30, 2014
Tesco will slash its dividend and investment spending to give its new boss more firepower to rebuild Britain's biggest retailer, after a second profit warning in two months showed the scale of the task it faces.
The grocer said yesterday that as a result of its worsening performance, former Unilever turnaround specialist Dave Lewis would start on Monday - a month earlier than planned - with a remit for a major review of the 95-year-old business.
The latest profit warning lays bare the need for a change at a company once considered an unstoppable engine of growth, with annual trading profit now expected to come in around 25 per cent lower than last year - a third straight year of decline.
Analysts said the 75 per cent cut in the half-year dividend to 1.16 pence per share was much deeper than expected, but it would give Lewis greater flexibility to revive the world's No 3 retailer, such as by cutting prices.
"We are not expecting a quick turnaround. We think it will be a couple of years for margins to recover and we think the share price could be under pressure for a while," said Niall Dineen, a portfolio manager at AGF International Advisers.
"We see this as "clearing the air" ahead of a strategy reset involving a significant reduction in pricing and, potentially, further asset disposals outside the UK," Standard & Poor's analyst Carl Short said.
Tesco has been hit by fierce competition from discounters at the lower end of the market as well as by rivals at the top, and by changing British shopping habits.
The big out-of-town stores it long championed are now less in demand, with more people preferring to shop little and often at local stores or buy online. Costly mistakes abroad, such as a failed US venture, have also taken their toll on Tesco.
Britain's largest private sector employer, with over 500,000 staff, started losing ground in its key home market in the latter years of chief executive Terry Leahy's tenure.-Reuters