Tesco: analysts' view

Tesco’s leadership gap must be plugged

By Rod Addy contact

- Last updated on GMT

Tesco received some praise for better-than-expected figures
Tesco received some praise for better-than-expected figures

Related tags: Tesco, Welwyn garden city

Tesco must plug its leadership gap to aid its turnaround, as the retailer’s suspension of key players in the light of its accounting crisis has weakened it, one analyst has claimed.

David Gray, retail analyst at Planet Retail, said: “The fact is Tesco is still reeling from the effects of the accounting scandal, crucially lacking the manpower to helm its largest vessel, namely the UK.

“Tesco will need to plug this leadership gap fast if it is to find solutions to faltering sales and lacklustre profits at home.”

Shore Capital analyst Darren Shirley said Tesco’s announcement of its appointment of Matt Davies as UK and Ireland ceo would help in that regard.

Davies’ appointment is important to our minds as it represents another external candidate taking up a key role at Tesco.

“By filling the UK role quickly, Lewis ‎will have more time to undertake important group work on the balance sheet, international operations and the remaining services such as the Bank. We will watch with interest to see how the management team and strategy further evolves at Tesco.”

Restructure

Tesco ceo Dave Lewis announced a restructure of Tesco’s senior management team on December 1. That followed the suspension of several senior executives after the supermarket chain admitted it had overstated first half profits by £263M.

Among the new appointments, Jason Tarry, previous head of clothing, became head of commercial for the UK and Tesco group. Former online boss Robin Terrell became head of customer, while chief creative officer Matt Atkinson and group business planning and strategy director David Hobbs left the business.

Eight executives had been suspended, although one of them, head of food sourcing, was reinstated on December 8.

Shirley noted significant highlights in the better-than-expected results statement covering the 19 weeks to January 3.

They included strong double digit growth in grocery home shopping, an increase in fresh produce sales volumes for the first time in five years and positive performance from Tesco Express. He also singled out massive growth in general merchandise and clothing sales.

However, he remained cautious about Tesco’s prospects for shareholders from 2015 onwards.

More needed

He welcomed Lewis’ comments on ways the company could repair its balance sheet, but stressed that more was needed.

He praised the sale of Dunnhumby, which he estimated could wipe about £778M off Tesco’s debts, plus moves to address pension responsibilities by closing its defined benefits scheme to new entrants.

“We also welcome a cut in capital expenditure to c£1bn for [the full year] 2016 at least, through a cut in the store building programme,”​ he added.

The announcement of 25% price cuts on own-label products was also positive, claimed Shirley, who praised Lewis for taking measures to improve store standards before tackling the price issue. He expected Tesco to address prices and offers in other areas throughout this year.

He also commended declared intentions to restructure central overheads, simplify store management structures and increase working-hour flexibility, to achieve savings of about £250M.

Head office closure

The strategy was linked to the firm’s decision to close its Cheshunt head office and relocate its headquarters to Welwyn Garden City, which underlined the change in corporate culture, said Shirley.

Conlumino analyst David Alexander praised Lewis strongly in the wake of Tesco’s statement. “If Lewis’ entry into Tesco was a baptism of fire, on the evidence of these results, it seems that the new man at the helm may just have the right tools to douse the flames.

“It is early days, but after being parachuted in to the job early in the wake of the disastrous accounting scandal, that threatened to cap off the worst year in the company’s recent history, the new ceo has shown some early promise, with the grocer ending 2014 on something of a high note.” 

For more details of Tesco’s recovery plan and results for the 19 weeks to January 3, click here​.

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