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Tesco Extends Drop as Lewis Starts Amid Report of Stake Cut

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Tesco CEO Dave Lewis
Tesco Plc Chief Executive Officer Dave Lewis, seen here, replaces Phil Clarke, who in 3 1/2 years as CEO failed to stem Tesco’s decline in market share as customers defected to discounters Aldi and Lidl and the upscale Waitrose chain. Source: Unilever via Bloomberg

Sept. 1 (Bloomberg) -- Tesco Plc shares extended last week’s decline as Chief Executive Officer Dave Lewis began his new job amid a report that investor Harris Associates has cut its stake in the U.K.’s biggest grocer.

Tesco was unable to confirm the report in the Sunday Telegraph that Harris cut its holding to 1 percent from 3 percent. The newspaper cited the investor’s chief investment officer, David Herro.

The shares fell 2 percent to 225.5 pence at the close in London, the lowest price since September 12, 2003. They slid 6.6 percent on Aug. 29 after the supermarket operator said it plans to slash its dividend and reduce investment, while forecasting lower profit than analysts estimated. The grocer also announced that former Unilever executive Lewis will start a month earlier than originally planned.

Lewis is moving from “head of Unilever personal care to CEO of Tesco intensive care,” John Kershaw, an analyst at Exane BNP Paribas in London, said in a note today. He will need to “articulate what Tesco stands for, fix its price problems and reconnect with disaffected customers,” Kershaw wrote.

Lewis replaces Phil Clarke, who in 3 1/2 years as CEO failed to stem Tesco’s decline in market share as customers defected to discounters Aldi and Lidl and the upscale Waitrose chain. Clarke spent more than 1 billion pounds ($1.7 billion) on refreshing hypermarkets, developing an online media strategy and introducing technology products such as the Hudl tablet.

Dispensable Distractions

Kershaw called the latter distractions and expects them to be dispensed with along with garden-center chain Dobbies, and the Fuel Save and Price Promise promotional campaigns.

In a letter to Tesco staff that was published today by The Grocer and confirmed by the company, Lewis said he won’t take any “hasty decisions” and will spend the first few days talking to staff at headquarters in Cheshunt, England, as well as meeting shareholders and analysts.

“The most important thing is that all focus on being on top of our game,” Lewis said in the letter. “We need to keep it simple and customer focused.”

Tesco had its worst sales decline in more than two decades in the 12 weeks ended Aug. 17, as revenue dropped 4 percent and market share fell 1.4 percentage points to 28.8 percent, Kantar Worldpanel data showed last week. Aldi and Lidl maintained record shares of 4.8 percent and 3.6 percent, respectively.

Release Funds

The board’s decision to reduce investments and the dividend will release funds needed to turn business around, a person familiar with the company’s strategy said last week.

Tesco cut the interim dividend by 75 percent, reduced capital spending plans by 16 percent and forecast profit this year of no more than 2.5 billion pounds, compared with the 2.7 billion pounds estimated by analysts.

To get customers back, Lewis will need to deliver “amazing prices, amazing quality and services, but not necessarily in the same store,” according to Bruno Monteyne, a former Tesco executive now working for Sanford C. Bernstein in London. Tesco’s size lends itself to breaking up the estate into low cost and more upscale stores, Monteyne said.

The analyst also suggests that Lewis should seek to sell Tesco’s businesses in central Europe and China.

In South Korea and Thailand, the grocer’s largest markets outside the U.K., Monteyne advocates giving the businesses their own management teams and listing them locally.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Kim McLaughlin, Paul Jarvis

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