Tesco share price surges nine per cent after naming Matt Davies as new UK boss: sales drop, but turnaround begins

 
Guy Bentley
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Tesco to shutdown 43 unprofitable stores (Source: Getty)

Tesco's share price surged by more than nine per cent this morning, after the troubled supermarket outlined its turnaround strategy.

It reported a fall in like-for-like sales of 2.9 per cent in the 19 weeks to 3 January - a better than expected set of results.

The supermarket, which had a dismal 2014, set out its stall this morning. One of the key pieces of the puzzle is hiring a new chief for its UK and Ireland business. Matt Davies will join from Halfords, where he is group chief executive, on June 1. He replaces Chris Bush, who was one of several executives suspended as part of the investigation into its £263m profit overstatement.

The company also confirmed the sell off of head office locations Cheshunt in 2016 as it looks to shore up its finances.

Performance is also looking marginally better. Over the six week Christmas trading period, the FTSE 100 company suffered a decline in like-for-like sales excluding fuel of 0.3 per cent. However, these results are better than many had feared. Including fuel, Tesco recorded growth of 0.1 per cent.

The Price War

The supermarket is making big changes to adapt to a highly competitive market announcing last night it be joining rivals in making significant price cuts to some if its most popular products.

Tesco shoppers will benefit from falling prices of goods such as Hovis, Coca-Cola and Marmite. The company has had a rocky two years, to say the least, with profit warnings and accounting scandals galore. Rival supermarket Asda revealed on Tuesday it would be slashing the cost of 2,500 "essentials".

Jill Easterbrook, in her new role as chief customer officer, said:

We know that customers want to see changes in the way we serve them. One of the biggest things they've been saying is that they want prices which are simple, consistent and low

Cost Cutting

Tesco will cut capital expenditure to £1bn in 2015/16 and is selling home entertainment service Blinkbox to TalkTalk for £5m. A further £250m of savings are planned every year thanks to a one-off restructuring of central overheads, simplification of store management structures and increased working-hour flexibility.

Shareholders may not be so happy that the end-of-year dividend has been scrapped. 43 unprofitable stores will be closed and the opening of 49 "very large" will be abandoned. The company will also shutdown workers' final salary pension scheme.

Tesco's chief executive Dave Lewis said:

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. Our recent performance gives us confidence that when we pull together and put the customer first we can deliver the right results.

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