LONDON — British supermarket chain Tesco saw its shares tumble 11.6 percent to 2.03 pounds, or $3.31 by the close of trading in London Monday, as a result of a profit warning the firm issued earlier that day, linked to an accounting error.
Tesco, which had already been grappling with falling sales and market share, said Monday that it had overstated its half-year profit guidance of 1.1 billion pounds, or $1.79 billion, by an estimated 250 million pounds, or $407 million. Tesco said that the error was “principally due to the accelerated recognition of commercial income and a delayed accrual of costs.” Tesco added that at its request, Deloitte is now undertaking an independent review of the issues, working with Freshfields, Tesco’s external legal advisors.
Dave Lewis, Tesco’s group chief executive officer, who took up his post Sept. 1 said: “We have uncovered a serious issue and have responded accordingly. The chairman and I have acted quickly to establish a comprehensive independent investigation.”
In a research note Monday, Barclays commented that while some of the $407 million profit shortfall was a result of “intra-year timing,” so some of that figure would be allocated to Tesco’s second half profits, that did not account for the full shortfall, meaning the retailer’s full-year trading profit guidance may need to be reduced. “Tesco makes no comment about the level of adjustment that might be needed to [full year] guidance — so we cannot necessarily assume that the maximum change required is 250 million pounds,” Barclays’ note stated. The bank called the update “unquestionably very bad news for Tesco.”
Tesco has now moved its interim results announcement from Oct. 1 to Oct 23, and said it would provide a “further update” of the issue at that time.