Tesco revamp is major not seismic
Tesco shares are currently surging 15% higher on Thursday, after the struggling supermarket chain announced a slate of far-reaching measures to halt sliding sales and […]
Tesco shares are currently surging 15% higher on Thursday, after the struggling supermarket chain announced a slate of far-reaching measures to halt sliding sales and […]
Tesco shares are currently surging 15% higher on Thursday, after the struggling supermarket chain announced a slate of far-reaching measures to halt sliding sales and repair its balance sheet, together with its hotly anticipated Christmas trading update.
The element of surprise was enhanced after the market, the media and other observers were wrong-footed somewhat by recent comments from Tesco CEO Dave Lewis suggesting he favoured a more low-key approach to introducing much-needed changes.
Media briefings had recently been hinting that the CEO would prefer the City to look for new changes within Tesco stores themselves and via their reception from shoppers.
In the event, Tesco conducted the media equivalent of opening the floodgates with at least 7 significant big pushes that are likely to radically change the shape of the UK supermarket in the years to come.
The added increment of ‘awe’, if not ‘shock’, to announcements which were always going to have an element of surprise, is important to note, because it reveals what could be interpreted as a shrewder than average media strategy to go hand-in-hand with the announcements.
To be fair, there’s little doubt today’s announcements bring plans of material changes, deserving of the share price jump the market has rewarded Tesco with.
On top of the sweeping changes to its cost centres, disposal plans and management structures, Tesco also notably announced the appointment of a new CEO of UK and Ireland operations, Matt Davies, previously CEO of Halfords.
His appointment comes as UK MD Chris Bush remains suspended, having been placed on leave along with several other senior managers—collectively known as the ‘Cheshunt Eight’, after the location of the supermarket’s headquarters—late last year, in the wake of Tesco’s £260m profit misstatement.
The business is under investigation by the Serious Fraud Office over the guidance error and is also subject to a separate probe by UK financial regulator the Financial Conduct Authority.
Davies had overseen a 64% advance of Halfords stock during his two-year tenure there, after embarking on a turnaround plan that soon brought about a revival of sales and large jumps in pre-tax profit.
The turnaround was focused on heavy investments in online services, staff training and store revamps.
Davies is also a former CEO of mid-market home furnishings retailer Dunelm Group and a former senior executive at Phones4U parent company, Caudwell Communications.
He is relatively young at 41, compared to what is surely a higher median age of CEOs of firms of comparable size to Tesco’s domestic operations.
These previous positions may enhance his capabilities as a senior manager of general merchandise management expertise, providing a hint of one area that Tesco may increase its attention on from now.
The appointment of Davies looks to be at the heart of Tesco’s extensive rethink of centralised management in the UK, including the ‘closure’ of its Cheshunt, Hertfordshire, head office.
Actually the supermarket is in effect relocating and centralising its headquarters into more modern existing internationally focused offices in Welwyn Garden City.
The new management focus will give the impression of and perhaps live up to notions that Tesco wants a more tightly-knit top management framework, capable of reacting more quickly and with greater focus than in the past, to the fast-moving challenges of the new consumer world the firm faces.
The fact that Davies will carry the more authoritative title of UK and Ireland CEO compared with MD Chris Bush—who in fact remains with the company albeit still suspended—serves to underscore Tesco’s HQ refresh.
But I can’t help feeling the slick communications moves were meant to put a sheen on changes which are big, but not quite big enough.
This is why in our view, the advance of Tesco shares that reached about 10% this morning, is likely to abate in the medium term, with no reason in sight for the stock to avoid eyeing the 11-year intraday lows marked last year at 154p on 9th December.
(Momentum is currently not favourable, in fact).
To summarise, we continue to think Tesco has left a few nettles un-grasped on a number of fronts, despite the laudable commitments to slim down and reorganise announced today.
Hourly dealing in City Index’s Daily Funded Trade has been resilient.
Whilst near-term momentum still favours buyers, the title needs to continue advancing far enough beyond prior hourly highs, to maintain current prices to the close.