"He agreed with the Board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile." Those were the words from Tesco chairman Sir Richard Broadbent, referring to chief executive Philip Clarke, whose resignation this week came as the supermarket chain issued another profit warning against a backdrop of falling sales.
Tesco said trading conditions had deteriorated since it reported its first-quarter results in June, and warned sales and trading profit for the half-year were now likely to be "somewhat below expectations". Some analysts have said this could equate to a 10 per cent cut to forecasts. But the extent to which this will affect the full-year result is anyone's guess. Management has stated, rather opaquely, that it would depend on the success of the ongoing investment being made in prices, products and stores. But the general consensus is that things are likely to get worse before they get better.
Mr Clarke's resignation did not come as a huge surprise. Since taking over from Sir Terry Leahy in 2011, he has presided over three years of declining sales. As well as being overstretched overseas, Tesco is being hit particularly hard at home, as shoppers once loyal to the Tesco brand are flocking to heavy discounters such as Lidl and Aldi, which offer decent quality food at rock-bottom prices. Thus, with a failing strategy and weakening shareholder support, the pressure had been building for some time.
The incoming chief executive, Dave Lewis, is the former president of Personal Care at Unilever (ULVR). His lack of retail experience is a potential concern, but he is said to be well-known within Tesco, having worked with the supermarket over many years during his time at Unilever. Presumably, his experience there means he knows how to handle price wars and should be adept at striking the right balance between branded and own-label products. But his plans for the company are not clear. A few city analysts have offered some suggestions: "We wouldn't be surprised to see Mr Lewis make strategic adjustments such as additional price investments, which could negatively affect financial results over the near term," says Morningstar's Ken Perkins.
"We hope this change will refocus efforts by Tesco to improve a continued string of embedded operational problems," says Rickin Thakrar of Espirito Santo, who has a 'sell' rating on the shares. David McCarthy, head of European Consumer Retail Research at HSBC, said consensus forecasts are looking increasingly wrong in the face of poor sales performance, and expects Mr Lewis will "kitchen sink" the full-year numbers. He added: "We have major uncertainty on Tesco strategy, profits and management's ability to adapt to retailing from branded manufacturing. The scale of the challenge is much greater than many realise and a successful turnaround will take five to 10 years. There will be a lot of pain along the way, without any guarantee of success."
