LONDON: Tesco's successful turnaround may bring it closer to regime change. Over three years since an accounting scandal and punishing price war, the grocer is improving margins and cutting debt. Boss Dave Lewis' revamp looks within reach. The question for investors is whether he will stick around to finish it.
Lewis' time at the helm of Britain's biggest grocer by market share has been eventful. He joined in late 2014 when competition from discounters Aldi and Lidl was starting to erode the grocer's operating margins, and fears rose over its debt. Lewis slashed prices and costs, sold off international businesses, and diversified by buying wholesaler Booker. Tesco has now turned in nine consecutive quarters of like-for-like sales growth, and its operating margin has nearly doubled to 3 percent, not far off its target of 3.5 percent to 4 percent by 2020. Lewis has also cut net debt by 4 billion pounds, and reinstated Tesco's dividend.
Easing economic strains should help Lewis finish the job. Inflationary pressures caused by the pound's devaluation after the UK voted to leave the European Union should ease this year, encouraging shoppers to spend more. The discounters meanwhile, are opening fewer new stores. Lidl and Aldi's UK store planning applications were down over a third last year from their peak in 2015 according Bernstein analysts, a sign that the larger supermarkets are now better able to compete with them.
That gives Lewis some breathing space to weigh up his own options. He is a possible candidate to replace his former Unilever boss Paul Polman, who is expected to step down towards the end of this year, according to Reuters. The 4 billion pound takeover of Booker provides the supermarket with a potential successor in the form of Booker boss Charles Wilson. Yet that deal divided opinion among shareholders, and is still being digested. A smooth integration would help a calm succession.
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