Tesco boss Dave Lewis announces shock departure

Tesco PLC (LON:TSCO) chief executive Dave Lewis has decided to leave the supermarket group, with Ken Murphy being poached from Boots to be his replacement.

Lewis, who was hired by the grocery giant in 2014, will step down next summer, saying, “Our turnaround is complete, we have delivered all the metrics we set for ourselves.”

Half-year sales metrics were not so great from the FTSE 100 retailer, with a 0.4% decline in like-for-like sales, compared to the 0.2% LFL growth seen in the first quarter.

UK and Irish LFLs flattened off to 0.1% for the 26 weeks ended 24 August 2019, having been up 0.8% for the first quarter, while central Europe and Asia both declined.

Thanks to exchange rate swings, group sales of £28.3bn were up 0.1%, while profit before tax rose 6.7% to £494mln, with around half the gain from currency moves and the rest from improving margins from the ongoing cost-cutting put in place by ‘Drastic Dave’.

The interim dividend was hiked 59% to 2.65p, as Tesco delivered free cash flow of £814mln from the retail business, around double that seen this time last year, and sold off 73 properties for total proceeds of £210mln.

Tesco’s slightly ambiguous guidance for the second half was to expect “a more even balance of profitability” between the two halves “as we move beyond our turnaround goals”.

Dave’s departure

Lewis said the decision to step down “is a personal one” and that he believes “the tenure of the CEO should be a finite one and that now is the right time to pass the baton”.

Chairman John Allan, who said Lewis had done an “outstanding job in rebuilding Tesco”, confirmed the departure date will be in the summer of 2020, but that the decision had been suggested some time ago. 

This enabled the company to appointed Murphy as a successor, who he said was “unquestionably, a seasoned, growth-orientated business leader”, with a precise start date stil.l to be confirmed. 

Murphy has been joint chief operating Officer at Boots UK & Ireland and most recently has been chief commercial officer and president of global brands at Walgreens Boots Alliance. 

It was a bit of a “bombshell” dropped on investors, said Neil Wilson, analyst at Markets.com. “Job done, I’m off – can’t say fairer than that.”

“Profits are back up. Dominant position in UK grocery market re-established. Booker deal pulled off with aplomb. Maybe some questions over Jack’s and moderation in LFL sales, but these are challenges for the next guy.”

Wilson said improved profits were “largely due to cost cutting” and the UK sales look worse than thought. “Those LFLs don’t look too pretty – Lewis has chosen his moment well. Investors may follow him.”

Of Lewis, analyst Clive Black at Shore Capital said: “put quite simply he is the bloke that saved Tesco, which should go down as an enormous achievement in British retail history. He will also, undoubtedly be a loss to the group in our view, and so Mr Murphy has big shoes to fill.”

He said group underlying profits were 5% above consensus expectations and the core guidance suggests “scope for an upward finessing” of full year PBT and EPS expectations “although there is much water to flow under the bridge in H2, not least the UK’s relations with the EU; what could possibly go wrong?”

Tesco shares were up more than 1% to 242.2p after just over an hour of trading on Wednesday.

Story by ProactiveInvestors