Things continue go from bad to worse for Tesco, Britain’s biggest, but battered sliding retail giant.
Thanks to intense competition from low cost rivals, such as Aldi and Lidl, and weak management, the tottering giant has already revealed two profit downgrades this year, cut capital spending and its interim dividend by 75%, and changed CEOs.
Now the ultimate humiliation – the company has owned up to a 250 million pound ($A400 million approx.) oversight and yet another profit downgrade.
So it’s no wonder the shares fell to an 11 year low in the wake of the pre-trading update.
They ended up down 11.6% to levels last seen in 2003.
TSCO:LSE 1Y – Tesco’s horror year
As a result of discovering the earnings oversight, announcement of the interim results have been delayed three weeks to October 23
Tesco had said on August 29 it expected trading profit for the six months ending August 23 to be in the region of 1.1 billion pounds. That forecast no longer stands.
Now it says that it “as identified an overstatement of its expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs,” it said.
In other words, Tesco seems to have recognised revenue far more quickly than it should have, while not recognising costs as quickly as they should have been.
It is said to be an old trick in businesses under pressure and is aimed at only one thing, boosting the profit and loss account so that it looks better than it really is. Four executives have been suspended, one of whom is the head of Tesco’s UK business, a very senior role.
“Work is ongoing to establish the extent of these issues and what impact they will have on the full year.”
Tesco said it had asked Deloitte to undertake an independent and comprehensive review of the issues, working closely with Freshfields, its external legal advisers.
Deloitte is a new adviser. Tesco’e existing auditors are Pricewaterhouse Coopers who declined to comment, according to UK reports.
Tesco had been the darling of the sector during two decades of uninterrupted earnings growth.
Warren Buffet owns just under 4% of Tesco shares. He has been trimming his holding in recent years, but he won’t be happy.
