Bottom Line: Clarke gave investors a nasty shock but deserves more time

Elizabeth Fournier

TESCO chief executive Philip Clarke may be sticking to his guns and ruling out a European retrenchment – despite a 68 per cent drop in profits in the region – but investors are clearly sceptical.

Though analysts seemed to have the fall priced in, shareholders still took flight, sending shares down as much as two per cent in early trading.

But beyond the obvious drag on profitability from poor sales in places like Turkey, and increased investment in Poland, yesterday’s update wasn’t that bad. UK food sales actually grew by one per cent – matching Sainsbury’s – but it was Clarke’s revamped superstores that really seem to be leading the turnaround.

With just 30 per cent of its hypermarkets refurb complete, sales at the updated stores – replete with Giraffe restaurants and Harris & Hoole coffee shops – have already been boosted by three to five per cent. As he moves ahead with his crucial turnaround plan, Clarke seems to have hit on a formula that works.

Tesco’s problems overseas are a common one – the same emerging markets crunch that is dogging its consumer peers. But its problems in the UK are different. Eighteen months after its shock profit warning, investors should give Clarke more time to prove he’s found the solution.