Distressed grocer Tesco (TSCO) tumbles another 7.95% to 211.35p on calamitous news interim profits may have been overstated by £250 million in last month's profits warning. New CEO Dave Lewis says 'we have uncovered a serious issue and have responded accordingly', though the market is clearly left stunned.
Britain's biggest retailer by sales has drafted in accountant Deloitte and lawyer Freshfields to lead the investigation, while four senior directors have been suspended until it completes.
The embattled grocer says the overstatement relates to its recent shock profits warning (29 Aug). At the time Tesco said first-half trading profits (adjusted operating profits) profits would be 31% lower year-on-year at £1.1 billion, also cutting its likely full-year profits guidance, again, to between £2.4 billion and £2.5 billion. That implied a 28% annual slump.
In this second earnings alert in quick succession, Tesco also cut its dividend and stripped back planned investment.
In today's alarming market missive, Tesco says it has identified accounting problems in its UK food business, where the misstatement reportedly relates to financial arrangements with suppliers. The overstatement is 'principally due to the accelerated recognition of commercial income and delayed accrual of costs', with a significant element of the overstatement linked to timing differences.
Lewis, whose hot seat entrance was brought forward a month given the urgent need to get on with the turnaround, has pushed back the interim results from 1 October to the 23rd, when the grocer will provide further illumination on the accounting shocker.
Today's news represents a further blow to Tesco, continuing to lose UK market share to limited assortment discounters Aldi and Lidl and whose beleaguered CEO Philip Clarke resigned following an earlier earnings alert in July. 'Such an announcement is not the stuff of a well operated FTSE 100 organisation,' write respected Shore Capital analysts Clive Black and Darren Shirley in a note to clients.
They say 'we are flabbergasted by this development and have no choice but to put our hold stance, which we only went up to through Mr. Lewis' appointment, under review.' Having previously seen merit in Tesco as a contrarian call, Shares recently turned bearish on the stock.