The City breathed a sigh of relief that new Tesco boss Dave Lewis says the embattled supermarket giant is not contemplating a stock market rights issue currently as the accounting scandal, mounting trading pressures and boardroom upheaval dog the business.
A further 92 per cent interim profits slump and a £263 million hole in the accounts that is £13m greater than the company first thought, as well as the news that chairman Sir Richard Broadbent will be stepping down in the not-too-distant future, is not the ideal backdrop to seek fresh investor backing.
The near-7 per cent fall in Tesco’s already chronically battered share price yesterday spoke volumes. There may be new brooms at the top in terms of a new chief executive, finance director and heavyweight non-executives, but there was plenty yesterday to keep shareholders’ hands in their pockets if the hat is eventually passed around.
The slashed dividend was already known about since the August profit warning that hastened Lewis’s arrival from Unilever to replace the hapless Phil Clarke.
But the company’s statement that there “are a number of uncertainties which limit visibility of future performance”, with the full-year trading outlook being scrapped, for instance, is hardly likely to engender institutional confidence.
It also didn’t help that Lewis, a retail high-flyer who comes from a strong marketing background, seemed to be serving up a vegetarian meal for the investor case around Tesco.
There was a lack of meat on a response to the trading threat of the discounters, with price promotions alluded to rather bloodlessly almost in passing, with more time given to high-falutin’ marketing-speak such as Tesco’s consumer champion “DNA” and “seas of opportunity”.
At times one wondered whether the new boss was going to say he would run concepts up the flagpole and see who saluted them.
Lewis said he was not into big-bang strategic announcements, more incremental improvement, which will never make a title for a chart-topping musical single.
Asset sales, such as Tesco’s arguably over-extended foreign footprint? Nothing ruled in or out.
Administrative retrenchment, including a look at the group’s near-three dozen UK offices? Possible, but no detail.
To be fair, Lewis has only had the hot seat eight weeks and his finance director Alan Stewart four weeks, and they have been fire-fighting the accounting fiasco.
Most bosses need at least three to six months to decide what is wrong, and how to put it right. But until Lewis replaces the ethereal with the tangible regarding his strategy – be it asset sell-offs abroad to reduce Tesco’s sprawl or a price slugfest in the UK stores to take the fight to the opposition – he will not calm City nerves.
Tesco is a giant that for decades virtually bestrode the food retailing market. It still accounts for about £1 in every £7 spent in retailing in the United Kingdom.
But Tesco has been shown to have feet of clay, is bloodied in the public consciousness, and is seen as adrift. I suspect the institutions will cut the new team slack until next spring at best to find out the meat-and-two veg of the new strategy.
But if it is not forthcoming by then, the shares, which have had a torrid ride that would have been deemed unimaginable even three or four years ago, never mind in Terry Leahy’s pomp, are likely to have furthe difficult times ahead.