UK: Profit shock hits Tesco shares
- Credit: Archant � 2008
Supermarket giant Tesco suffered fresh humiliation today after a shock admission that it overstated its profits guidance by £250 million.
Shares in Britain’s biggest grocery chain dived to their lowest level in 11 years as the revelation caused its third profits warning in as many months.
The supermarket has asked Deloitte to undertake an “independent and comprehensive” review of the issues, which involved the accelerated recognition of commercial income and delayed accrual of costs. Deloitte will work alongside Freshfields, the group’s external legal advisers.
Shore Capital Stockbrokers analyst Clive Black said: “These are serious times for Tesco and its shareholders. We are flabbergasted by this development.”
The investigation relates to Tesco’s latest profits warning at the end of August, when it said half-year trading profits would be in the region of £1.1 billion.
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The company admits that the issues uncovered in its UK food business mean the figure is likely to have been overstated by £250 million, leaving profits down by around 46% on the £1.58 billion a year earlier.
New chief executive Dave Lewis, who started in the role on September 1, said: “We have uncovered a serious issue and have responded accordingly.”
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The errors emerged during the company’s preparations for half-year results, which will now be announced on October 23 rather than October 1.
Mr Lewis, a former Unilever executive, added: “The chairman and I have acted quickly to establish a comprehensive independent investigation.
“The board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear.”
Mr Lewis took over from Philip Clarke, whose departure from the retailer he joined 40 years ago was brought forward after the profits warning at the end of August.
The previous profits guidance of £1.1 billion for the half-year to August 23 was already well below the City’s forecasts, even before today’s disclosure that profits had been overstated by around £250 million.
Tesco said a number of staff have been asked to step aside from their roles while the investigation is carried out.