Tesco shares rise as retailer paves the way for new CEO

21st July 2014

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Despite a issuing a profits warning, shares in Tesco have risen as it announces that its current chief executive officer Philip Clarke is to leave the group in October.

The UK’s largest supermarket chain, issued a cautionary note on Monday and confirmed that Dave Lewis, president of personal care at Unilever, and non-executive director of British Sky Broadcasting will take over as Tesco’s new boss. By market close the firm’s shares were up by 1% or 3.65p, to 288.65p – earlier in the day they had been up by almost 3% as traders welcomed the news.

Clarke, who began life at the group as a shelf stacker in the 1970s and has been CEO since 2011 has been under pressure for some time. The announcement of his departure follows a disastrous set of first quarter figures which illustrated how the retailer is suffering at the expense of heavy discounters such as Lidl and Aldi.

In its results for the three months to 24 May, Tesco reported that like-for-like UK sales including VAT and excluding petrol loosened by 3.7% while in the past 12 months, its shares have plummeted by 23%.

In a statement issued today, Tesco said: “Current trading conditions are more challenging than we anticipated at the time of our first quarter interim management statement on 4 June.  The overall market is weaker and, combined with the increasing investments we are making to improve the customer offer and to build long term loyalty, this means that sales and trading profit in the first half of the year are somewhat below expectations.”

Outgoing: Tesco's Philip Clarke

Outgoing: Tesco’s Philip Clarke

It added that the outlook for the full year will be influenced by the extent to which benefits from the investments it is making begin to be seen; by conditions in the overall market; and by any steps that may be taken during the remainder of the year to improve its customer offer further.

Tesco chairman, Sir Richard Broadbent said: “Having guided Tesco through a substantial re-positioning in challenging markets, Philip Clarke agreed with the board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile.

“Philip has done a huge amount to set a clear direction and re-position Tesco to meet the rapid changes taking place in the retail market.  He has achieved a great deal across all areas of the business in the face of considerable pressures.  The board are deeply grateful to Philip for his contribution to Tesco, over the last four decades, as well as more recently as chief executive.  His has been an outstanding achievement.

“Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development.  He is already known to many people inside Tesco having worked with the business over many years in his roles at Unilever.  The board believes that with Dave’s leadership Tesco will sustain and improve its leading position in the retail market.”

Clarke added: “Having taken the business through the huge challenges of the last few years, I think this is the right moment to hand over responsibility and I am delighted that Dave Lewis has agreed to join us.

“Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development.  He is already known to many people inside Tesco having worked with the business over many years in his roles at Unilever.  The Board believes that with Dave’s leadership Tesco will sustain and improve its leading position in the retail market.”

Paras Anand, head of European equities at Fidelity Worldwide Investment believes today’s announcement can be interpreted as Tesco wanting to really focus on re-establishing itself as a brand.

He said: “At its peak – only 5-6 years ago – it had strong resonance with customers and its power was reflected in the fact that it was able to move that brand both upmarket and downmarket. The decision to appoint a CEO from outside the business, reflects that it can sometimes be hard for insiders, especially those who have been present when a business is doing well, to be adequately attuned to when problems emerge.

“With David Lewis coming in as CEO, to join Alan Stewart as Tesco’s new finance director, shareholders now have the change they have been pushing for.  Given the challenges that Tesco faces, my hope is that both are given a reasonable period to turn things around.”

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