Most commentators were scathing about Tesco’s third-quarter results, which saw pre-tax profits nosedive by 92% to £112M, and an admission that the overstatement of profits at £263M were even worse than the £250M flagged up in August. The announced departure of chairman Sir Richard Broadbent also came as no surprise.
In a video interview, Lewis made some very general comments about his plans to stabilise Tesco in the months ahead by refocusing on the UK business; protecting and strengthening its balance sheet by improving its competitiveness; and restoring trust and transparency.
Selling off assets
Lewis avoided specifics about the structural changes necessary or the strategic review underway. He also refused to respond to speculation about selling off overseas assets to pay for Tesco to concentrate on its core UK market.
But that didn’t stop some commentators speculating about the need to slim down Tesco’s supplier base to enable it to compete better with the hard discounters. If this happens, the impact on Tesco’s suppliers could be huge and many will have to do a lot more than just ‘sharpen their pencils’ in order to retain business.
Analysts Clive Black and Darren Shirley from Shore Capital were concerned by Tesco’s statement: ‘We are reviewing all opportunities that exist within the group to generate value and create headroom. Full year profitability could therefore be further impacted by actions we choose to take.’ They said they would review their position on Tesco as a result.
On Lewis’s plans to restore Tesco’s core chain competitiveness, Black and Shirley remarked: “It remains the case that without a strong core, Tesco’s other businesses cannot flourish within the group for shareholders … at its most simple the focus is on the customer.”
Better price offer
They added: “Lower costs and cash outlays should also assist Tesco in delivering a better price offer to its UK customers, perhaps the one variable that was a little understated in the analysts’ meeting, to our minds.
“To be fair to Mr Lewis, he articulated well the fact that his initial priority is store standards and availability including the proper profiling of the top 1,000 SKUs in the UK. Once that work is undertaken, management will press the price buttons as necessary.
“We sense those buttons may need a considerable resource behind them given the relatively high pricing position of Tesco at present; the likely competitor reaction to any Tesco action – including something pre-emptive possibly from Sainsbury; all set within the context that Tesco cannot become a ‘super-sized Aldi’.”