Tesco slashes profit forecast again as brand battered

Tesco has issued its third profit warning of the year and is parachuting new boss Dave Lewis in a month early as it faces the challenge of turning around declining sales and a battered brand.

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Tesco says it now expects to make a trading profit of between £2.4bn and £2.5bn for the financial year 2014/15. This is a fall from the £2.8bn previously forecast and a more than 25 per cent drop on its profit last year.

Trading profit for the six months to 23 August is forecast to come in at £1.1bn.

Lewis, the Unilever exec chosen to take over as chief executive following the shock departure of Philip Clarke last month, will now start work on Monday (1 September) a month earlier than originally planned. Tesco says he will be reviewing “all aspects” of the supermarket’s business in order to improve its competitive position.

According to the latest figures from Kantar Worldpanel, Tesco sales for the 12 weeks to 17 August dropped 4 per cent, the worst performance of any grocery retailer. By comparison the overall grocery market saw sales increase by 1.1 per cent, with both Aldi and Lidl experiencing double-digit sales growth.

Tesco’s brand has also been battered. Figures from YouGov’s BrandIndex show that over the past six months consumer perceptions of Tesco have fallen by a statistically significant amount across almost every metric, from Impression to Quality, Satisfaction to Recommendation.

It now sits at the bottom of a list of 27 supermarkets in terms Buzz, a measure of the positive and negative things said about the brand, with its score falling 4.2 points to -10 over the past six months. Its Index score, which takes into account all the brand metrics, has fallen 4.4 points to 9.5.

Tesco also said capital expenditure would be £400m less than planned as it cuts investment in IT and slows its store refresh programme. Capital expenditure will now be no more than £2.1 this financial year, a £600m reduction on the prior year.

Shore Capital analyst Darren Shirley says the latest profit warning raises “fundamental questions” about the capability of Tesco’s management team. He expects a major shake-up of the senior team once Lewis takes over and has reviewed the business.

Tesco has already seen a number of management changes, including the hiring of a new chief financial officer and the creation of a new chief customer officer role that will oversee marketing. Former CMO Matt Atkinson was moved to a new chief creative officer role.

“Another announcement represents the inverse of whatever the icing on the cake stands for. While this update is unhelpful, it does not adjust our view that Tesco UK needs fundamentally better management and that this is a group where the pint can still be more than half full. ‎In time Lewis may also have views on the make-up of Tesco but stemming the tide of decline in the core has to be the priority,” says Shirley.

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