LONDON — Tesco’s shares had lost 6.9 percent to 1.70 pounds, or $2.81 in trading late afternoon Thursday, after the British supermarket chain confirmed that the impact of the overstatement of its expected first half profits – an accounting error that Tesco first reported last month – would be 263 million pounds, or $423 million. Tesco had initially estimated that the figure had been overstated by 250 million pounds, or $402 million.
The retailer also reported Thursday that its pre-tax profits for the 26 weeks to August 23 had plummeted 91.9 percent to 112 million pounds, or $188.2 million. Dollar figures have been calculated at average exchange rates for the periods to which they refer.
Profits were impacted by a weakening U.K. grocery market, tough trading conditions in Tesco’s overseas markets and investing in its customer offer, Tesco said.
The overstatement of profits accounted for 118 million pounds, or $198.2 million of the pre-tax profit decline, while a 70 million pounds, or $117.6 million charge on the balance sheet related to overstatement in the fiscal 2013/14 year and 75 million pounds, or $126 million to before that period, as the mis-statements stretched back beyond the past half. Tesco said Thursday that following Deloitte’s investigation into the overstatement, their report has now been passed to the U.K.’s Financial Conduct Authority.
In total, 527 million pounds, or $885.4 million of one-off items, including impairment charges and restructuring costs, along with the previous years’ profit overstatement, contributed to the steep pre-tax profits decline. Tesco’s net profit for the period declined 93.4 percent to 75 million pounds, or $126 million.
The retailer’s group sales during the period fell 4.4 percent to 34.01 billion pounds, or $57.14 million. The firm said its sales were impacted by strong competition in the grocery market, price cuts and fewer “untargeted” promotions.
In the same statement, Tesco’s chairman Sir Richard Broadbent said he would step down from the firm, calling the profits mis-statement “a matter of profound regret.” He noted that he will “now begin to prepare the ground to ensure an orderly process for my own succession.” “My decision reflects the important principle of accountability on behalf of the board and will support the company to draw a line under the past as it enters the next phase of its development,” he said.
Following the initial news of the mis-statement last month, Tesco said that its new chief financial officer Alan Stewart would join the firm Sept. 23, ahead of his expected start date of Dec. 1. Dave Lewis, Tesco’s new group chief executive officer, joined the firm Sept. 1.
In Thursday’s statement, Lewis described the business as operating in “challenging times.” “Trading conditions are tough and our underlying profitability is under pressure,” he said, noting that his priorities are “to recover our competitiveness in the U.K., to protect and strengthen our balance sheet and to begin the long journey back to building trust and transparency into our business and brand.”
Tesco declined to provide full year profit guidance Thursday, noting that it had “limited visibility” of its future performance. “We are reviewing all opportunities that exist within the group to generate value and create headroom. Full year profitability could therefore be further impacted by actions we choose to take,” the firm said. The retailer will next update the market with a Christmas and third quarter trading statement Jan. 8.