Sunday, February 17, 2019

Tesco release fresh profit warning


Things appear to be going from bad to worse for Britain‘s biggest retailer; today they have issued their second profit warning in as many months, and have slashed their dividend by 75 percent.

The supermarket giant has stated that “a number of uncertainties, including market conditions and the pace at which benefits from the investments we are making flow through in the second half” have led them to revise their forecast for the following year.

Their original forecast figure for 2014 was £2.8bn, however this figure has now been reduced to £2.4bn. Profits for the last six months (to 23 August) is forecast for £1.1bn and the brand have reduced their dividend by 75% to 1.116p per share.

Tesco‘s last profit warning (in July) initiated the departure of their previous CEO, Philip Clarke, and the latest warning has led them to bring in their new CEO, David Lewis, a month earlier than expected. The ex Unilever head will be taking up the position from Monday.

According to Phil Dorrell, director of Retail Remedy, Lewis will have his work cut out. He stated that: “A dividend cut of this degree underlines the extent of the problems Tesco is facing. Throw in the fact that Dave Lewis is being parachuted in a month early and you have a grocer that is truly on the rack. Dave Lewis has his work cut out, and then some, when he joins next week. Dave Lewis will probably be delighted that such bad news precedes his start. It highlights the continuing saga of profit leak that clearly runs deeper than most feared. For Tesco, right now, it will be feeling like Autumn metaphorically, not just literally. What‘s certain is that we won‘t be seeing a rapid turnaround. Tesco is an oil tanker and any material change of direction will not happen the weeks and months ahead, Dave Lewis and his team will need to rethink the entire Tesco model.”

Meanwhile Tesco appeared to be taking significant action to reshape the company. Sir Richard Broadbent, Chairman at Tesco , said:

“The Board‘s priority is to improve the performance of the Group. We have taken prudent and decisive action solely to that end. Our new Chief Executive, Dave Lewis, will now be joining the business on Monday and will be reviewing every aspect of the Group‘s operations. This will include consideration of all options that create value for customers and shareholders.

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.”

Further details on trading performance will be provided as usual in our Interim results announcement, scheduled for release on 1 October.