Tesco (LSE: TSCO) announced its much anticipated set of interim results today, which presented a mixed picture. 
For example, Tesco’s trading profit for the period only declined by 41% to £937m, better than the decline to £850m expected by many City analysts. However, alongside this relatively good news, the company revealed that its first half pre-tax profit had actually been overstated by £263m, compared to the initial estimate of £250m initially put forward, when the accounting scandal was first discovered.
Unfortunately, Tesco’s performance was worse than expected on many other metrics as well. Overall statutory profit before tax slumped 91.9% and earnings per share declined by a shocking 99.3%, from 10.17p down to just 0.07p. Total group sales at constant exchange rates decreased by 2% during the period. And as announced previously, the company’s dividend payout for the second half has been cut by 75%, to just 1.16p.
Alongside today’s results, chairman Sir Richard Broadbent has announced that he is standing down.
Not all bad news
There’s no covering it up, today’s results from Tesco are terrible… but it’s not all bad news, there are some parts of the Tesco empire that continue to perform well.
For example, Tesco Bank continues to attract customers and the divisions trading profit increased by nearly 16%, to £102m during the 26 weeks ended 23 August 2014. What’s more, Tesco’s European arm is performing surprising well with trading profit increasing by nearly 42% over the same period. Considering the economic climate within Europe, this performance is all the more impressive.
Additionally, back here in the UK Tesco’s online sales expanded 11% on a like-for-like basis during the reported period and convenience store sales increased by 0.8% on a similar basis.
Deep problems
Still, even though there are some bright spots in Tesco’s results, the company has a long way to go before it can claim to be making progress in its recovery.
Hopefully, now that Deloitte has completed its investigation, the company will be able to put its accounting scandal behind it. While the profit overstatement of £263m was greater than expected, this puts several years of accounting irregularities behind the company. Indeed, the total overstatement of £263m can be broken down, with £118m relating to first half profit this year, £70m relating to 2013/14 and a further £75m relating to activities conducted before 2013/14.
Tesco is now eager to put this issue behind it and the group has its sights set on moving forward and concentrating on growth. With a new Chairman, CEO and management team, the group will be able to start a fresh, which could mean a complete overhaul of operations and operational practices.
However, much of Tesco’s new management team lacks experience in the retail sector. So, only time will tell if the company can stage a comeback.
