* CEO to detail UK turnaround plan after Jan. profit warning
* Analysts warn problems in UK business are deep-set
* Focus likely on smaller stores, pricing, store
improvements
LONDON, April 17 (Reuters) – Britain’s Tesco is set
to unveil a plan to turnaround its UK business when it reports
annual results on Wednesday, as the world’s third largest
retailer battles to regain ground lost to rivals in its main
market.
Tesco’s future UK strategy will be keenly watched after the
company issued its first profit warning in living memory in
January, having been one of corporate Britain’s most consistent
growth companies.
“The biggest challenge facing Tesco is rejuvenating the UK
business. Tesco must undergo root and branch surgery in order to
overhaul product quality, service levels and store ambiance,”
Oriel Securities analysts said.
Chief executive Philip Clarke, a year into the job, needs to
convince investors he can reverse the fortunes of the UK unit,
which contributes over 70 percent of group trading profit. He
jettisoned the previous UK head last month and added the role to
his own remit.
Most analysts expect Tesco to announce plans to concentrate
more on smaller convenience stores rather than hypermarkets, and
to invest in pricing, stores and staffing, with Espirito Santo
analysts putting a figure of 400 million pounds ($637 million)
on the UK investment programme.
However, the problems the retailer faces in the UK are deep
set and could take years to fix, a number of analysts warned,
with Oriel Securities suggesting a turnaround could require
“much more” than 400 million pounds.
Macquarie analysts think restoring the UK business to its
former health will take two to three years and “setting it up as
a one-year turnaround is not credible”.
Espirito Santo’s Richard Cathcart also said he believed
positive results from any investment programme proposed by Tesco
would take longer to show through than management expects.
“It (Tesco) has a considerable management challenge to drive
the UK business back to growth,” said analysts at Panmure
Gordon, in agreement.
Tesco, which trails France’s Carrefour and U.S.
leader Wal-Mart by annual sales, is expected to report a
2 percent rise in underlying profit before tax to 3.88 billion
pounds ($6.19 billion) for the year to Feb. 25 2012, according
to the consensus of 20 analysts’ forecasts provided by the
company.
The firm warned in January it saw minimal group trading
profit growth for the 2012-13 year and latest grocery industry
data showed the firm still losing market share to rivals
including U.S. firm Wal-Mart’s Asda.
The new plan will build on a pledge Clarke made last month
to take on 20,000 new staff, and refresh hundreds of stores with
a focus on better offers of fresh produce, fresh meat, bakery
and counter services, as well as investment in price and a new
value range.
