Tesco share price: What the analysts are saying
Tesco's profit warning – its second in just over a month – came out of the blue this morning, but its sentiment has been known for a while.
The supermarket's struggles are well documented, from loss of market share against Lidl and Aldi, and growth at a 10-year low.
Here's how analysts have responded to Tesco's profit downgrade and dividend cut as it tries to turn things around by bringing new boss Dave Lewis in a month earlier than planned.
Senior management changes ahead?
It is very disappointing to see this update, which fundamentally raises questions in our minds about the capability of the management under Mr. Clarke at this once great company. As such, we expect, as part of a range of measures, there to be considerable senior management change under Mr. Lewis in time, as Tesco needs a world class top team to take it forward.
We can speculate but not predict Mr. Lewis' priorities. As such, we should also respect the fact that he needs time to assess matters and manage the business. Hence, whilst this update is unhelpful, it does not adjust our view that Tesco UK needs fundamentally better management and that this is a group where the pint can still be more than half full.
-Clive Black, Shore Capital
The worst out the way?
It appears that the new CEO is bringing some of the bad news forward, principally doing the kitchen sinking earlier than expected.
[Kitchen sinking] may have been brought forward, but without knowledge of the new strategy we cannot conclude how much investment it will take and we cannot expect any sudden reversal in trading fortunes to stem the negative operational gearing.
-Bruno Monteyne, Bernstein Research
Taking a trick from Sainsbury’s book
Looking ahead the new CEO Dave Lewis is planning to start on 1 Sept, a month earlier, so he can start to formulate a new strategy and UK recovery plan. It seems Tesco have taken the same route as Sainsbury’s did in 2005 when Justin King halved the dividend and margins. The question now is how far lower might the UK trading margin go?
-Mike Dennis, Cantor Fitzgerald
Staff cuts?
We still believe the new CEO and FD need to find £500m+ of annual cost savings and take a £150m provision to reduce UK staff numbers by 10% or 20k FTE’s and refocus the business formats on driving cash profit growth.
A £800m reduction in total dividend (14.76p to 4.76p) and £500m cost base reduction would give Tesco £1.3bn of extra cash to either invest in price and put its main competitors in considerable margin pain or build a new trading strategy around different formats.
-Mike Dennis, Cantor Fitzgerald
It may be bad news for shareholders, but at least it's Friday.
Today we turn into those seagulls from Finding Nemo, but instead of "Mine!" all we can say is "Friday!"
— Tesco (@Tesco) August 29, 2014