Tesco this morning announced extensive cuts in a bid to recover from a terrible 2014. A statement from CEO Dave Lewisannounced "a restructuring of central overheads, simplification of store management structures and increased working-hour flexibility, delivering savings of c.£250m per year". Tesco also saidthat it will not pay a final dividend for 2014/15.
The supermarket chain will shut 43 unprofitable outlets and abandon plans to open 49 "very large" stores. Two of Tesco's businesses Tesco Broadband and video-streaming service Blinkbox will be sold to TalkTalk.
"We back the radical package outlined", one top ten shareholder told the Financial Times. "Costs have to come down so that prices can come down. Tesco has to become competitive in terms of price, like it was five years ago. People will go to Aldi because they can get the same products cheaper. It is that simple."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Markets responded well to Tesco's announcement. Shares traded above £200 this morning for the first time since September, having opened at £190.25.
Tesco's good news helped the FTSE 100 index climb 1.2%, or 78 points, to 6,497.87 in morning trade.
Analysts also reacted positively, but advised caution: "In terms of dealing with priorities, they've done all the right things with the balance sheet, but it's clearly not the end yet," said Bruno Monteyne at Sanford C Bernstein in London.
For some, Tesco's actions were long overdue. "Take a step back from the display of fireworks, and you realise how severely Tesco has lost its competitive edge over the last half-decade", wrote Nils Pratley in the Guardian.
"Lewis's plan to cut 30% from central costs is a spectacular confession of corporate flabbiness. The old Tesco that terrified the competition may be half a decade away and that's if the plan succeeds.
In other supermarket news, Sainsbury's had a good morning. Its share price had risen by9.56% at lunchtime. But Marks & Spencer had a torrid early session, down 4.43% after it announceddisappointing sales figures for the festive period.
UK sales fell by 2.7%, with poor online sales (down 5.9%) partly to blame. International sales were also poor, falling5.8% year-on-year.
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
How to profit from rising food prices: which stocks should you invest in?Tips Food prices are rising – we look at the stocks to avoid and the one to invest in this sector.
-
Tesco looks well-placed to ride out the cost of living crisis – investors take noteAnalysis Surging inflation is bad news for retailers. But supermarket giant Tesco looks better placed to cope than most, says Rupert Hargreaves.
-
Tesco sells its retail subsidiary in Thailand and Malaysia for £8bnNews Tesco has agreed to sell its southeast Asian operations to Thai conglomerate Charoen Pokphand for £8.2bn in cash.
-
Tesco should keep its Asian assetsOpinion The £7bn that Tesco could get for its Tesco Lotus business in Asia looks enticing. But holding on to it would be smarter, says Matthew Lynn.
-
Tesco cashes out of the mortgage businessFeatures Tesco Bank has left the mortgage market by selling its £3.7bn loan book. Its 23,000 customers will be moved to the Halifax, a subsidiary of Lloyds.
-
Share tips of the weekFeatures MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
-
Tesco wields the axeFeatures Britain’s biggest supermarket is cutting back on staff and fresh food. Will the move prove counterproductive? Matthew Partridge reports.
-
If you'd invested in: Tesco and Associated British FoodsFeatures Tesco has seen its market value rise almost 50% in a year, while AB Foods has seen shares slide despite a rise in profits.
