Tesco replaced its CEO and said trading was tough. Johnny Armstead/Demotix/Corbis
LONDON— Tesco  PLC said Chief Executive Philip Clarke would leave the company in October to be replaced by Unilever  PLC executive Dave Lewis, as the U.K.'s largest retailer issued a new profit warning. Tesco said on Monday that trading in recent weeks had been more challenging than anticipated and profit in the first half of its financial year would be below expectations. It is Tesco's second profit warning in Mr. Clarke's three year tenure, but only its third in nearly two decades.
Mr. Lewis, a 27-year Unilever veteran, will join Tesco on October 1. Mr. Clarke will then step down as chief executive, but remain with Tesco until January 2015, the company said. "Having guided Tesco through a substantial repositioning in challenging markets, Philip Clarke agreed with the board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile," Tesco Chairman Richard Broadbent said in a statement.The switch comes as Tesco battles to boost flagging sales amid a changing U.K. retail environment, where discount chains Aldi Stores Ltd. and Lidl UK GmbH are forcing the U.K.'s big supermarket chains to reduce prices in a fight to retain customers.
Similar comments were attributed in the statement to Mr. Clarke, who declined to comment further.Mr. Clarke's departure brings to a close a 40-year career at Tesco, during which time the company grew from the U.K.'s third-largest supermarket into one of the world's biggest retailers, competing with the likes of Wal-Mart Stores Inc.  and France's Carrefour SA  .
Most of that growth came under Mr. Clarke's predecessor, Terry Leahy, who expanded Tesco's international reach from five countries to 13. But the expansion came at a price: Tesco failed to pay enough attention to the U.K. market, which accounts for nearly 70% of its £70.89 billion ($121.18 billion) in annual sales. Its share of the U.K. grocery market has fallen consistently in the last three years and last month Tesco reported its sharpest drop in quarterly sales in decades.
Mr. Clarke attempted to revive Tesco's U.K operations amid a rapidly changing retail environment, defined by the global recession and the rise of discount retailers.
Tesco's plan to revive its performance in the U.K. at first centered on improving stores and customer service, but more recently Mr. Clarke has opted to invest in reducing prices of everyday products to compete with discount chains.
Pressure built on Mr. Clarke as trading remained weak, and the executive received afrosty reception from investors at the retailer's annual shareholder meeting late last month Since becoming CEO in March 2011, Mr. Clarke also has sought to rein in some of Mr. Leahy's more ambitious international forays. He shut down operations in Japan and the U.S. and diluted Tesco's involvement in China. By removing Mr. Clarke and appointing an outsider, Tesco is drawing a line under the Leahy era and signaling a change in tack. Mr. Lewis, currently global president of Unilever's personal care division, is renowned for his focus on consumers and reliance on product innovation to drive growth. "Dave Lewis would have been right at the front of the queue of people to take over," said Clive Black, an analyst at stockbrokers Shore Capital. "I don't believe there was anyone of suitable caliber within the organization."
The appointment of Mr. Lewis is a blow to Unilever, the world's No. 2 consumer goods company after Procter & Gamble Co.  Long-rumored as a successor to Chief Executive Paul Polman, Mr. Lewis was spearheading Unilever's move away from selling processed food and toward personal care products like deodorants and shampoos.
Mr. Lewis didn't respond to requests for comment.Unilever said Alan Jope, who currently heads the company's operations in Russia, Africa and the Middle East, will replace Mr. Lewis when he leaves in October.