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TESCO SHARES DROP: LEWIS EXPLAINS PLAN FOR TURNAROUND

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TESCO SHARES DROP: LEWIS EXPLAINS PLAN FOR TURNAROUND

Dec 9 2014, 11.10am GMT

STOCK.com

Tesco is now valued at just £12.8bn, down from almost £40bn in 2007; CEO explains how he will reset the company.

Tesco shares plunged from 187 to 155, but have retraced to 167.

The UK100 [FTSE] also dropped on the news, from 6664.40 to 6576.09.

In a press conference this morning CEO Dave Lewis answered to reporters on the fourth profit warning in the last year.

Tesco to reset

The Guardian reported Dave Lewis saying, “This is a fantastic business, it has a fantastic group of people working across it. We have got into a difficult position, particularly financially, but I can see a way out. It means taking difficult decisions now, and it will have an impact on the value of the company and the share price.

This is a management team that is doing the right thing for the business, recruiting 6,000 people. Our future depends on our relationship with our customers, and our long-term relations with our suppliers.

There are signs of encouraging feedback......I am deeply mindful of the impact I am having on the shareholders as I reform this business, but I hope they understand that this is the best way to create medium and long-way shareholder value.”

The analyst’s retort

The FT reported Mike Dennis, consumer analyst, Cantor Fitzgerald as saying, “On our figures, we now expect second-half UK trading profit of £15m, down 98.6 per cent, and estimate full-year 2015 UK trading profit of £514m, down 76.5 per cent, and implying a UK trading margin of 1.2 per cent.

Net debt was reported at £7.5bn in the first half, up £500m, and we now expect it to be higher at February 2015 unless capital investment has also been cut and working capital improved. Looking ahead, the implications for the sector are significant, we could now expect little if any UK sector trading margin.”

The forecast on Tesco profit margins in the UK being just 1.2%, takes them down from a peak of 6% when Sir Terry Leahy was in charge.

Concern for investors

Dave Lewis said, “I’ve got to be worried about the share price. I really do understand the City’s concerns.”

But on a question regarding why anyone should invest in Tesco, Lewis answered, “We have nearly 30% of the grocery market. There’s a lot that we can do to drive innovation. If we get Tesco firing, we can generate medium and long-term value for shareholders. The decisions we are taking will have a short-term impact on shareholders, and I regret that.”

Summary:

  • 6,000 people hired since late October
  • Dave Lewis will probably be replaced as temporary CEO with a permanent leader installed in the next few months
  • Seasonal staff, such as students, will only work for Tesco over Christmas and then depart
  • Lewis suggested that there could be job cuts at head office and back office
  • Tesco are taking any incentive that exists between them and the supplier, and moving it to between Tesco and the customer
  • No schedule for reset – Lewis says, “It’s “incredibly difficult” to predict the timeline of a turnaround.”
  • Lewis promised more information on January 8th 2015

MT4 chart for today: Tesco

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