Tesco PLC Warns On Profit Yet Again…

TescoTesco (LSE: TSCO) just can’t seem to get things right. After issuing several profit warnings so far this year, the company reveled this morning that group profits for the six months to 23 August 2014 were overstated by an estimated £250m.


Tesco blamed this overstatement on the accelerated recognition of commercial income and delayed accrual of costs. As a result, management has asked Deloitte to undertake an independent and comprehensive review of Tesco’s accounts.

This news comes two months before ex – M&S finance chief, Alan Stewart is set to start at Tesco as finance chief on 1 December.

Tesco’s new CEO, Dave Lewis commented that:

“We have uncovered a serious issue and have responded accordingly.  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.”

Dave Lewis has revealed, in the past hour or so, that a number of people have been suspended while the investigation is underway. Those suspended include four senior executives.


Today’s warning comes only a few weeks after Dave Lewis took over at the helm of the UK’s largest retailer. Mr Lewis was brought in a month early, after Tesco issued its third profit warning of the year at the beginning of September. The new CEO has described the last few weeks as a “rollercoaster”.

After only a few days, Lewis an outsider brought in to turn things around, noticed a lack of morale at the retailer. So, along with other senior figures, the new CEO has stated to collect information on how best to turn the business around. The first stage of this plan involved emailing every single one of the group’s employees, asking them where they thought the business needed to change.

Initially, this strategy has been received well by City analysts and company employees alike, although today’s news is likely to have shaken the company to the core.

A new management team, admission of mistakes and a new businesses plan are the first of many steps Tesco will have to take to return to health. Nevertheless, on the bright side the company is finally starting to wake up and realize that it will have to make drastic changes to turn things around.

Turnaround will take time

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Rupert Hargreaves owns shares of Tesco. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.