Paul Jarvis London
TESCO chief executive Dave Lewis set out his plan for reviving the struggling UK grocer, a process that will involve dozens of store closures and possible disposals worth billions of pounds.
The shares rose as much a 6.6 percent as the retailer said it would also shut its head office in Cheshunt, England, “significantly” revise its supermarket opening programme, halt dividend payments and consider closing its defined benefit pension scheme. Tesco also reported Christmas sales that beat estimates and said it was cutting prices on hundreds of branded products.
Lewis is trying to turn around the company as earnings are set to drop to the lowest in at least a decade, after an accounting scandal that saw profit overstated by £263 million (R3 billion). Tesco said yesterday that it would appoint Matt Davies, the chief executive of car parts retailer Halfords Group, to run its UK business and lead a revival amid a competitive onslaught from German discounters Aldi and Lidl.
Lewis declined to give details on expected job cuts, but said he was “looking to reduce the costs within our overheads by around 30 percent”, adding that “we have some very difficult changes to make”.
Disposals
Tesco said it had appointed advisers to “explore strategic options” for its Dunnhumby data-analytics business. Dunnhumby may be worth as much as £2bn, according to reports in October that tipped buyout firms including TPG Capital Management as possible bidders.
The grocer also said it had sold the Blinkbox movie-streaming service to TalkTalk Telecom Group. The sales were only the “first steps in strengthening the balance sheet”, leaving open the possibility of further disposals, although Lewis said the company was committed to keep “all operations we have overseas”, including its Asia businesses.
Analysts welcomed the better-than-expected Christmas trading and Lewis’s recovery plans. “In terms of dealing with priorities, they’ve done all the right things with the balance sheet, but it’s clearly not the end yet,” Bruno Monteyne, a retail analyst at Sanford C Bernstein, said.
Among other changes, 43 unprofitable stores would close, while the head office would be relocated to Welwyn Garden City, England, Tesco said.
Cost-cutting measures aimed at saving £250m a year were also announced, which would incur a one-time cost of £300m. Capital spending for the year through 2016 will be cut by £1bn. – Bloomberg