Tesco’s woes have deepened after one of the supermarket group’s biggest shareholders castigated it for operating an “incoherent strategy” with “unclear management direction” and revealed that it had more than halved its stake in the business.
Harris Associates said it had reduced its stake in the UK’s largest retailer from more than 3 per cent in June to about 1.4 per cent. The move came ahead of Friday’s surprise profit warning and dividend cut from the retailer, which led Tesco’s share price to fall back to levels last seen in 2003.
Dave Lewis, the incoming chief executive, will begin work this week, a month earlier than planned, with a mandate to turn round the supermarket group. Tesco has already revealed extensive cuts to capital expenditure, including slowing a store revamp programme and reducing IT spending.
David Herro, chief executive of Harris, a US fund manager, confirmed the stake sale in an email.
Mr Herro wrote: “We lowered our stake because of unclear management direction and incoherent strategy as both the CEO and CFO will be new and we have no idea how the company will proceed.
“We think there is potential, but given the management and strategic uncertainties, we felt a smaller position would be more prudent,” he wrote.
Once the dominant player, Tesco is struggling to find its way in a crowded sector being fought over by J Sainsbury, and Wm Morrison even as price conscious customers are siphoned off by discounters such as Aldi and Lidl. UK food prices fell year on year during July for the first time since such data were recorded.
Tesco’s profit warning last week sparked share price falls across the supermarket sector as investors worried profit margins would be pared even further by renewed price wars.
Harris Associates’ move to reduce its Tesco stake was first reported by the Sunday Telegraph.
Mr Lewis, who comes from Unilever to replace Philip Clarke, is expected to lead a shake-up of the retailer’s strategy to reverse the decline in sales. He will be joined by new finance director, Alan Stewart, previously of Marks and Spencer, in December.
Sir Richard Broadbent, Tesco’s chairman, said Mr Lewis would consider “all options that create value for customers and shareholders”. Mr Lewis also faces questions about the future of Tesco’s overseas business.
Bloomberg data still shows Harris Associates as the eighth largest owner of Tesco stock split between client portfolios, although the data has not been updated since the beginning of July. Tesco declined to comment.
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Date: August 31, 2014