Tesco this morning announced extensive cuts in a bid to recover from a terrible 2014. A statement from CEO Dave Lewis announced “a restructuring of central overheads, simplification of store management structures and increased working-hour flexibility, delivering savings of c.£250m per year”. Tesco also said that it will not pay a final dividend for 2014/15.
The supermarket chain will shut 43 unprofitable outlets and abandon plans to open 49 “very large” stores. Two of Tesco’s businesses – Tesco Broadband and video-streaming service Blinkbox – will be sold to TalkTalk.
“We back the radical package outlined”, one top ten shareholder told the Financial Times. “Costs have to come down so that prices can come down. Tesco has to become competitive in terms of price, like it was five years ago. People will go to Aldi because they can get the same products cheaper. It is that simple.”
Markets responded well to Tesco’s announcement. Shares traded above £200 this morning for the first time since September, having opened at £190.25.
Tesco’s good news helped the FTSE 100 index climb 1.2%, or 78 points, to 6,497.87 in morning trade.
Analysts also reacted positively, but advised caution: “In terms of dealing with priorities, they’ve done all the right things with the balance sheet, but it’s clearly not the end yet,” said Bruno Monteyne at Sanford C Bernstein in London.
For some, Tesco’s actions were long overdue. “Take a step back from the display of fireworks, and you realise how severely Tesco has lost its competitive edge over the last half-decade”, wrote Nils Pratley in the Guardian.
“Lewis’s plan to cut 30% from central costs is a spectacular confession of corporate flabbiness. The old Tesco that terrified the competition may be half a decade away – and that’s if the plan succeeds.
In other supermarket news, Sainsbury’s had a good morning. Its share price had risen by 9.56% at lunchtime. But Marks & Spencer had a torrid early session, down 4.43% after it announced disappointing sales figures for the festive period.
UK sales fell by 2.7%, with poor online sales (down 5.9%) partly to blame. International sales were also poor, falling 5.8% year-on-year.