Credit: Tesco

Tesco shares plunge 15% after profit warning

100 days of horror: It's hard to imagine Dave Lewis is enjoying himself after notching up his century at Tesco.

by Jack Torrance
Last Updated: 05 Jan 2015

It’s probably not the announcement embattled Tesco boss Dave Lewis was hoping to make after 100 days as chief executive. Tesco warned today that it doesn’t expect this year's profits to exceed £1.4bn - way below the £2bn expected by analysts and the £2.4bn to £2.5bn guidance Tesco issued in August.

Locked in a price war with discount supermarkets and its other competitors, Tesco has been in the doldrums for a while but was left reeling by the news in September that its profits had been overstated by around £250m. Today Lewis said he was running the business with a focus on creating ‘sustainable value.’

‘Whilst the steps we are taking to achieve this are impacting short-term profitability, they are essential to restoring the health of our business,’ he said. ‘We will not engage in short term actions that compromise in any way our offer for customers.’

Lewis is essentially positioning the fall in profits as the result of responsible investment in the future, including taking on 6,000 new staff, cutting some prices and improving the availability of products.

He told a conference call of journalists this morning that Tesco was ‘resetting’ its relationship with suppliers, which has been the focus of discussions over how its profits were overstated. He didn’t go into too much detail about what this would mean in a practical sense, but did confirm that rebates would remain.

Investors didn't seem too optimistic about the new strategy. Before today, Tesco’s shares had already plunged 43.25% this year and this morning they plunged 15% when the market opened. At last check they were down 10.36% to 167.9p.  Whatever the next 100 days brings for Drastic Dave, they surely can't be as tumultuous as the last.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today