Dave Lewis' baptism of fire: Tesco issues profit warning and slashes divdend

The new boss will be starting a month early, as things go from bad to worse for Britain's biggest supermarket.

by Rachel Savage
Last Updated: 21 May 2015

It could be an attempt to clear out all the skeletons of the soon-to-end Philip Clarke (and, to be fair, Sir Terry Leahy) era before Dave Lewis takes over the top job at Tesco on Monday, a month earlier than planned. But the profit warning today - the second in as many months - also makes it look like the new guy will have an even tougher job turning around Britain’s biggest supermarket.

Profits for the year to the end of February 2015 will be £2.4bn-£2.5bn, down from the prior forecast of £2.8bn and a huge dive from the £3.3bn in the previous year. The figure for the six months to August 23 is expected to be £1.1bn, compared to £1.6bn last year.

The interim dividend is also being slashed by 75%, to 1.16p per share. Shareholders had been expecting a cut, but nothing on this scale and shares duly plunged 8.75% at the open to 225p, although that fall has now moderated to around 6.5%.

The supermarket tried to sweeten the pill by announcing capital expenditure for the full year will be no more than £2.1bn, £0.4bn less than originally planned and £0.6bn lower than last year. So much for Clarke’s store revamp programme.

‘The actions announced today regarding capital expenditure and, in particular, dividends have not been taken lightly,’ said chairman Sir Richard Broadbent in the stock market statement. ‘They are considered steps which enable us to retain a strong financial position and strategic optionality,’ he continued, in probably the most convoluted management speak ever to see the cold light of day.

The torrid forecasts come after figures from Kantar Worldpanel earlier this week showed Tesco’s sales plunged 4% in the last 12 weeks. That was the worst performance of any supermarket, as German discounters Lidl and Aldi continued to gain ground.

It all adds up to an increasingly difficult turnaround for ex-Unilever man Lewis to execute. No doubt that review of ‘every aspect of the Group's operations’ is much needed. Every little helps...

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