By Peter Evans
LONDON-- Tesco PLC has announced a series of dramatic changes to
its business as the U.K. supermarket giant seeks to revive its
fortunes after a period of turmoil unprecedented in its 96-year
history.
Tesco said on Thursday that it would invest in cutting prices,
close unprofitable stores and begin selling off underperforming
assets. Plans to open a string of large-scale superstores have been
scrapped.
Chief Executive Dave Lewis said a 30% cut in "central overheads"
would result in cost savings of GBP250 million ($378.1 million) a
year after a one-off cost of GBP300 million. He confirmed that
would mean job losses but declined to say how many.
Tesco, which competes with Carrefour SA for the rank of No. 2
global retailer by sales after Wal-Mart Stores Inc., said it
wouldn't pay a final dividend for the current financial year but
maintained its forecast for profit of no more than GBP1.4 billion
($2.11 billion).
"We have some very difficult changes to make," Mr. Lewis said.
"It is essential we safeguard the future of our business."
Those changes include the consolidation of head-office locations
and the sale of Tesco's Blinkbox movie streaming and broadband
services to TalkTalk Telecom Group PLC for an undisclosed amount.
Tesco said it would also close 43 unprofitable stores and has
shelved plans to open 49 new ones.
Tesco said it has appointed Goldman Sachs Group Inc. to explore
a possible sale of Dunnhumby, its data-analysis unit. Analysts say
the business could be worth GBP2 billion. The retailer also said it
would reduce capital expenditure to GBP1 billion in the 2015-16
financial year, from the current level of GBP2.7 billion.
The company named Matt Davies, CEO of automotive retailer
Halfords Group PLC, as its new chief for the U.K. and Ireland.
Trevor Masters, who had been Tesco's CEO for Asia, was named CEO
for international.
The steps come after a turbulent year for Tesco, which has
replaced its chief executive and chief financial officer and issued
four profit warnings.
While Tesco still is the U.K.'s biggest retailer by sales, it
has faced years of falling market share amid intense competition
from higher-end grocery stores and aggressive discounters.
Among Tesco's biggest problems has been its inability to compete
on price. Prices at Tesco are now about 6% higher than at
Wal-Mart-owned Asda, which is the cheapest among the U.K.'s
big-four supermarkets, according to data from Sanford C.
Bernstein.
In response, Mr. Lewis said Tesco would reduce prices by an
average of 26% on hundreds of branded grocery products. He declined
to say how much Tesco would invest in cutting prices.
Problems faced by the entire grocery industry have been
compounded at Tesco by a series of corporate missteps, including
ill-advised and now-defunct expansions into the U.S. and Japan.
Tesco is also the subject of a continuing investigation by the U.K.
Serious Fraud Office into a GBP263 million accounting misstatement,
which could result in criminal convictions for individuals or the
company as a whole.
The accounting issue involves overstating a profit forecast and
resulted in the departure of several senior executives.
In the wake of the scandal, Tesco Chairman Richard Broadbent
also said late last year he plans to step down when a replacement
has been found.
But there are signs that Tesco could be turning a corner.
Tesco on Thursday said U.K. same-store sales, excluding
gasoline, fell 2.9% in the 19 weeks ended Saturday, better than
most analysts' predictions and a significant improvement on a
decline of 5.4% in the fiscal second quarter ended Aug. 23. The
shares rose as much as 11% in early London trading.
"Perhaps, at last, there are some glimmers of light at the end
of the tunnel," said Richard Hunter, head of equities at Hargreaves
Lansdown Stockbrokers.
Write to Peter Evans at peter.evans@wsj.com
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