Shares in Tesco closed down 6.6 per cent in early afternoon trading, after the supermarket posted first-half results showing statutory profit before tax, which includes one-off items, collapsed by 91.9 per cent to £122m in the 26 weeks ended 23 August 2014.
Sir Richard Broadbent, Tesco’s chairman, announced he will step down, while the embattled supermarket admitted an independent investigation by Deloitte had found it had understated its £250m profit “overstatement” to the tune of £13m: the final figure came in at £263m.
The accounting error concerned Tesco’s method of booking payments from deals with food suppliers early while at the same time pushing back the recognition of costs.
The most chilling fact for Tesco in these results is not the collapse in profits, not the accounting mis-statements that appear to go back to at least 2012-13 (appalling enough as those are), it is the 4.6% annual decline in UK sales.
Customers are turning their back on Tesco which is no longer seen as the best of the Big Four for price or quality. Dave Lewis will have to make a big move on both to convince customers to try Tesco’s again.
Tesco is the most significant victim of a huge structural change in the UK retail sector – online shopping; the breakdown of the Big Four’s dominant position and customers who want smaller, daily top-up shopping. Many believe that a permanently smaller, less profitable Tesco is now a stark reality.
Like-for-like sales excluding VAT and petrol in the UK fell by 5.5 per cent in the second quarter. The string of bad news comes only days after latest industry data showed Tesco’s sales falling at the fastest rate in the sector.
If anyone was in doubt the FTSE company is facing serious challenges, Tesco has abandoned its outlook for profits in 2014 due to “a number of uncertainties”. Tesco warned full-year profitability could be “further impacted” by its woes
Accountancy firm Deloitte has completed its investigation into Tesco’s misreported profits.It found that profits were overstated by £118m in the first half of this year, by £70m in the 2013-2014 financial year and by £75m before that.
Tesco had been doing deals with suppliers over promotions, which is commonplace for supermarkets, but it appears Tesco had been booking returns from those promotions too early, while pushing back the costs.Eight executives have been suspended since that practice was revealed.Tesco said there was no evidence of personal gain from the mis-statement.Deloitte’s report is being passed to the Financial Conduct Authority (FCA) and other regulators.