* CEO Philip Clarke to step down on Oct. 1
* To be replaced by Unilever exec Dave Lewis
* Warns H1 sales and profit "somewhat below expectations"
* Shares rise as much as 3.5 pct
* GRAPHIC on retail returns: link.reuters.com/byx42w
(Adds graphic, investor comment, background, updates shares)
By James Davey and Martinne Geller
LONDON, July 21 Tesco is to ditch chief
executive Philip Clarke and replace him with a turnaround
specialist from Unilever, ending a disastrous three
year reign as Britain's biggest retailer warned it would again
miss profit forecasts.
Just three weeks after backing Clarke at Tesco's annual
shareholder meeting, Chairman Richard Broadbent said on Monday
it was now time to hand over to a new leader "with fresh
perspectives and a new profile."
Clarke, who has spent more than 1 billion pounds ($1.7
billion) on a failed recovery plan in Tesco's main home market,
will be succeeded on Oct. 1 by Dave Lewis, who is credited with
revamping a succession of businesses at consumer goods group
Unilever and is currently its global president of personal care.
A party scheduled for Tuesday to celebrate Clarke's 40-years
at Tesco was promptly cancelled.
Analysts said the appointment of a non-retailer and the
first outside CEO in Tesco's 95-year history could herald a
major strategy re-think at the world's third-biggest stores
group, which could include big price cuts to win back customers.
"A material change in UK trading strategy cannot be
dismissed, which is likely to have considerable implications for
the rest of the British sector," said Shore Capital's Clive
Black, who upgraded his rating on Tesco stock to hold from sell.
The darling of the retail sector during two decades of
uninterrupted earnings growth, Tesco started losing ground in
the UK in the final years of long-standing CEO Terry Leahy's
tenure. Clarke issued his first profit warning in January 2012.
More recently, it has been squeezed between discounters Aldi
and Lidl at one end and upmarket grocers
such as Waitrose at the other, and hurt by the slowest
growth in the overall UK grocery sector for over a decade.
Its attempts to respond were hampered by its exposure to
large out-of-town stores in the UK at a time when more shoppers
are buying online, and costly mistakes abroad including a failed
expansion into the United States, originally a Leahy initiative.
Clarke, who started at Tesco as a teenager stacking shelves
in a store managed by his father, fought back with a
wide-ranging plan including trimming prices, revamping stores
and product ranges and investing in internet shopping and
technology such as the Hudl tablet. But the firm's market share
and share price have continued to decline.
One former Tesco director said Clarke, 54, "confused
activity with progress," took a series of "short term knee jerk
decisions" and had failed to listen to colleagues. "Phil has
never listened, Phil is a teller," he said.
According to researchers Kantar Worldpanel, Tesco's market
share dropped to 28.9 percent in June from 30.7 percent when
Clarke took over in March 2011. During the same period, Aldi
grew to 4.7 percent from 2.1 percent and Lidl to 3.6 percent
from 2.5 percent, while Sainsbury's and Wal-Mart's
Asda - Tesco's main rivals - remained largely stable.
Analysts said Lewis' 27-years at a major supplier to the
retail sector could help negotiate better prices and that his
experience with branding could help a company that was no longer
associated by many Britons with either low prices or quality.
Tesco shares, which had been languishing near 10-year lows,
rose around 3.5 percent in early trade. At 1337 GMT, they were
up 1.9 percent at 290.5 pence, topping the FTSE-100 index.
Shares in Sainsbury's and No. 4 player Morrisons
were down 1.6 percent and 1.9 percent respectively.
"Tesco needed somebody fresh from outside the organisation.
Looking at the company from a different perspective could be
helpful," said one institutional shareholder in the retailer.
With Lewis, 49, viewed as heir apparent to Unilever CEO Paul
Polman, succession at that firm is now far less clear.
"Tesco's gain is Unilever's loss," said Jefferies analyst
Martin Deboo, who said Lewis had a track record of turning round
businesses in Argentina, Indonesia and also Britain.
"He (Lewis) knows the UK grocery industry very well from the
supply side, which is an advantage. He's smart, entrepreneurial
and commercial but at the same time he's unpretentious. I think
he'll be a good leader and a good cultural fit."
Lewis was chairman of Unilever UK and Ireland from 2007
until 2010, when he became president of the Americas. He took on
his latest role as head of personal care products in 2011.
Still, analysts noted the transition from consumer goods to
retail has not always been easy. Lars Olofsson, a former Nestle
executive with no retail experience, took the top job at
France's Carrefour in 2009, beginning what turned into
a very troubled three years that saw a spate of profit warnings.
Lewis will work alongside new Tesco finance chief Alan
Stewart, who quit Marks & Spencer earlier this month but
may not start at Tesco for six months due to a non-compete
clause in his contract.
Tesco said trading had turned tougher than expected at the
time of its first-quarter update on June 4, and that sales and
trading profit in its fiscal first half were "somewhat below
Shore Capital's Black estimated a 5-10 percent downgrade to
his 2014-15 earnings forecast.
Clarke, who had told reporters on June 4 "I'm not going
anywhere," will "provide support" to Lewis until January 2015,
when he will get a year's salary in lieu of notice, Tesco said.
Lewis will be paid a basic salary of 1.25 million pounds,
525,000 pounds in lieu of his current year cash bonus from
Unilever and awards of equivalent expected value in lieu of
deferred share awards from Unilever.
($1 = 0.5858 British Pounds)
(Additional reporting by Kate Holton and Nishant Kumar; Editing
by Mark Potter)