Tesco share price up, unveils rescue plan for its UK business

Britains largest supermarket chain Tesco Plc said it will dispose of loss-making stores, reduce product prices, sell assets and cut costs in an attempt to turn around its troubled business.

The company reported like-for-like sales drop of 2.9% in the 19 weeks to January 3, including a 0.3% fall during the six weeks Christmas period. The performance surpassed most analysts expectations and was better than Q2s decrease of 5.4%

However, Tesco said it remained confident in its group trading profit guidance of no more than £1.4 billion for the 2015/2015 financial year, but said it will not pay a final dividend.

“We have some very difficult changes to make,” said Chief Executive Dave Lewis, while pointing out that he is aware that these changes will be significant for all shareholders. “Our recent performance gives us confidence that when we pull together and put the customer first we can deliver the right results.”

Tesco said is looking into the possible sale of its data business Dunnhumby, provider of the retailers clubcard loyalty scheme. The company also said it had agreed to sell its unprofitable video streaming service BlinkBox and Tesco Broadband to telecoms group TalkTalk.

The company also announced it will engage in talks with a consultancy over the close of the companys defined benefit pension scheme. While also significantly reducing capital expenditure to £1 billion for the financial 2015/2016.

The company will merge head office locations, closing Cheshunt in 2016 and turning Welwyn Garden City into its UK and group center. The disposal of 43 unprofitable stores, simplification of store management structures and increasing working-hour flexibility are all measures taken by Tesco with the aim to save £250 million a year.

Tesco has been facing severe competition by both high-end grocers and German discounters during the worst year of its 96-year history.

During 2014 the company issued four profit warnings, changed its CEO and CFO, suspended managers and fired a chairman. Mostly due to the $263 million overstatement of its half-year profit, for which Tesco is still under investigation by the UK Serious Fraud Office.

With those drastic measures Tesco hopes to end the turbulence and support the planned price cuts of its products.

Tesco edged up 1.79% on Wednesday and closed at GBX 182.00 in London. On Thursday the stock jumped 9.31% to trade at GBX 198.95 at 10:18 GMT, marking a one-year decrease of 39.39%. The company is valued at £14.52 billion.

According to the Financial Times, the 17 analysts offering 12-month price targets for Tesco PLC have a median target of GBX 180.00, with a high estimate of GBX 325.00 and a low estimate of GBX 95.00. The median estimate represents a 1.10% decrease from the last close price price.