Can Tesco’s Clarke deliver a Ryder cup like come back?

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After last nights dramatic and unexpected Ryder Cup victory by Europe at Medina against all the odds by José María Olazábal’s team, Tesco’s CEO Philip Clarke must be hoping he has engineered a similar turn around at Tesco. The UK’s biggest retailer announces its interim results on October 3rd after the shock profits warning back in January – its first decline in profits for 20 years and shortly after the departure of the long serving ex-CEO Sir Terry Leahy.

After trailing 10 to 6 after the four balls/foursomes on Friday and Saturday, an amazing comeback meant that Europe’s players won the single competition by 8½-3½ giving them a victory by 1 point at 14½-13½ by the end. Victory delivered from the jaws of defeat – Europe’s winning odds were 33-1 early yesterday!

Tesco’s interims on Wednesday should give some reassurance that the worst of the retailers problems are behind it but there is still plenty for Clarke and investors to worry about. The results are expected to show that its performance in the UK has improved since a profit warning in January but that profits at its US Fresh and Easy division as well as at its European and Asian operations remain under pressure.

Analysts are forecasting that Tesco’s net profit could fall to £1.6 billion in the first half of 2012, down 10% versus 2011 and the first drop since 1994. Like-for-like sales in the UK are forecast to be flat in the second quarter of 2012, though an improvement on the 1.5% fall in the first quarter.

The company will be updating over 400 stores this year and has invested £200 million on 8,000 new staff for its large stores and fresh food departments. It has also updated 8,000 products in its standard ranges and was initially very aggressive in taking on Sainsbury with heavy price promotion and coupon activity, though this strategy is being trimmed back.

Following January’s profit warning, Warren Buffett increased his stake in the retailer as the shares tumbled to just over £3 from £4.11, they revisited the sub £3 level in June. Today the shares stand at £3.32, still way off their peak.

Perhaps Clarke will be seeking inspiration from somewhere, but unfortunately no Ballesteros like hero for the troops to rally around!

Contrarian Investor UK

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