A spike in Tesco shares after the ousting of chief executive Phil Clarke (pictured) was not enough to offset falls in tobacco, house builder and super market stocks, which weighed down the FTSE 100 by 20 points or 0.3% to 6,729.
Tesco (TSCO) jumped 2.2% or 6.2p to 291p after Clarke quit for failing to revive the group’s fortunes after three years in charge. He will be replaced in October by Dave Lewis, president of the personal care division at consumer goods giant Unilever, who is credited with having turned round its UK business.
Unilever (ULVR) was 1.7p firmer at £26.34.
Lewis will work alongside new finance chief Alan Stewart who will join Tesco from Marks & Spencer later this year.
The news accompanied another profits warning from Tesco, confirming that Clarke’s £1 billion turnaround plan for the UK had again failed to take root. Current trading conditions were more ‘challenging’ than anticipated at the last interim statement in June, it said, while increased investment in the UK stores and pricing meant ‘sales and trading profit in the first half of the year are somewhat below expectations’.
Tesco shares have fallen nearly 13% this year and are down 22% over five years. This reflects the rot that set in during the final years of stewardship by Sir Terry Leahy, Clarke’s predecessor, and the intense competition from discounters such as Aldi and Lidl.
Analysts at Jefferies welcomed the appointment of Davis saying his ‘extensive knowledge of the UK market, combined with strong international experience (in Asia, Americas and eastern Europe), make him well suited for the role’. However, they said it was a ‘stretch’ to call the news a catalyst for recovery given the fierce competition in the UK retail market.
Imperial Tobacco (IMT) shed 1.6% or 43p to £26.45 in response to a $23.6 billion fine imposed on RJ Reynolds in the US. The punitive fine was awarded by a Florida jury in a case brought by Cynthia Robinson, a widow of a chain smoker who died of lung cancer in 1996 at age 36. Although the fine is likely to be scaled back on appeal it could usher in another period of damaging awards for the sector, analysts said. Shares in Reynolds American (RAI.N), which owns RJ Reynolds, fell 5% last week.
Barratt Developments (BDEV) dropped 1.4% or 5p to 357p after property website Rightmove reported a 0.8% fall in house prices in July, the first month-on-month decline this year. Stricter lending rules from the Bank of England and the prospect of a rise in interest rates had caused sellers to lower their prices, Rightmove said.
Galliford Try (GFRD) bucked the trend rising 2.8% to £12.78, the top FTSE 250 riser, although the mid cap index fell 0.6% or 86 points to 15,470.
Gold gained $5 to $1,314.4 an ounce as investors kept a wary eye on developments in the Ukraine following Western governments’ condemnation of Russia’s alleged role in the downing of the MH17 airline; and on Gaza where Reuters reported Israeli forces had killed at least 10 Palestinian militants with further civilian casualties caused by the barrage from its jets and tanks. The United Nations Security Council on Sunday called for an immediate truce.