Thursday, February 21, 2019

Tesco‘s profits crash 92%


Today, Tesco was the worst-performing FTSE 100 stock in terms of percentage. After weeks of suspense following a profit overstatement scandal, the UK‘s biggest grocer announced further troubling news this morning.

Due to accounting irregularities, it was revealed last month that Tesco had exaggerated profits by millions of pounds, £250mil to be exact. An inquiry into account practices ensued led by Big Four accountancy firm Deloitte, and it is now understood that Tesco‘s profits had admittedly been exaggerated by £263mil, resulting in a 92% tumble in first-half profits.

It was discovered that the supermarket had been booking supplier contributions that were conditional on hitting sales targets that it was not going to reach. The overstatements will also impact second-half results, the company has said, declining to give guidance on full-year profit performance because of “uncertainties.”

Warren Ruhomon, senior market analyst at Finspreads said:

“The lack of transparency on the level of profits that Tesco expects to report for full year performance is another dagger through the heart of investor sentiment. It‘s hard to see any investors out there buying Tesco shares on anything. The lack of guidance, a deeper than expected accounting hole and a grocery sector that is in structural decline are three of the biggest issues affecting Tesco right now.”

Consequently, Sir Richard Broadbent, chairman since 2011, has announced he will be stepping down once the supermarket‘s management transition is complete and new business plans are in place.

Despite Broadbent‘s decision to leave, recently appointed chief exec Dave Lewis appears to be remaining calm and collected. Lewis, a former veteran of the consumer goods group Unilever released the following tactful statement:

“Our business is operating in challenging times. Trading conditions are tough and our underlying profitability is under pressure. We do however face these challenges from a position of market strength and I have been heartened by the team‘s welcome and their determination to stay focused on doing the very best for our customers. Whilst my review of the whole business continues, three immediate priorities are clear: to recover our competitiveness in the UK, to protect and strengthen our balance sheet and to begin the long journey back to building trust and transparency into our business and brand.”

Lewis will need to redefine the brand before it loses all relevance in a market that is becoming overpopulated with grocery chains offering competitive prices, exotic foods and speedy deliveries.