Supermarkets titan Tesco (TSCO) ticks 2.85% higher to 287.85p as news of CEO Philip Clarke's imminent departure offsets the impact of another profits warning. Clarke will be replaced by long-serving Unilever (ULVR) man Dave Lewis in October, having endured a punishing time at the helm of Britain's biggest grocer since 2011.

In a surprise announcement, Tesco says Clarke will step down from the board on 1 October. Clarke will, however, remain on hand to help Lewis, currently Global President of Personal Care at Unilever, transition into his new role until the end of January.

TSCO Chart

In truth, Clarke's departure has been on the cards for some time given his efforts to turn Tesco around haven't been working. The beleaguered CEO has presided over successive falls in quarterly sales at a time of structural upheaval in the British grocery market. Tesco faces cut-throat competition from hard discounters Aldi and Lidl and its hypermarket model fast becoming redundant given trends towards online ordering and top-up trips to convenience stores.

Lewis looks a good fit, having worked with Tesco over many years in his roles at key supplier Unilever, where he is said to have engineered a number of turnarounds. Investors are responding positively to news of change at the top at Tesco, which has also lured (10 Jul) numbers man Alan Stewart away from food retailing rival Marks & Spencer (MKS).

Optimism surrounding a potential new strategy for the struggling core domestic business more than offsets another round of downgrades. Tesco today warns trading conditions have worsened since its first-quarter update (4 June). A tough grocery market twinned with increasing investment to win back customers means first half sales and trading profit 'are somewhat below expectations'.

Yet on the grounds Lewis will get the turnaround back on track, well-followed Shore Capital scribe Clive Black upgrades his recommendation from 'Sell' to 'Hold'. The retail analyst writes: 'With this important development we sense that the market will broadly welcome the change in management, which is a melancholy point to make given the hard and extended graft that Philip Clarke has put into Tesco.'

Black continues: 'However, sadly, we feel that there has been a feeling of inevitability about developments at Tesco in recent times, and as such with this news we could expect the market to offset the disappointment of the downgrades with a sense of relief that the group is entering a potentially more effective chapter in its development.'

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Issue Date: 21 Jul 2014