Tesco announces £250m overstatement of profits

By Erin Smith

Published: 22 September, 2014

Tesco overstated its profits for the first six months up to August 23, 2014 by an estimated £250 million, according to a statement released by the company this morning.

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Tesco overstated its profits for the first six months up to August 23, 2014 by an estimated £250 million, according to a statement released by the company this morning.

The oversight was due to "an overstatement of its expected profit for the half year, principally due to accelerated recognition of commercial income and delayed accrual of costs," Tesco said.

Subsequently, shares took a major hit in today's early morning trading session, falling nearly10%. This brings Tesco PLC (LSE:TSCO) stock down 41.64% for the year.

Dave Lewis, the new chief executive, who was forced to start earlier than expected due to the challenges the supermarket giant was facing, said: "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."

Lewis and the Tesco board have asked accounting firm Deloitte and Freshfields, Tesco's external legal advisors, to conduct an independent review of what happened. Tesco normally employs PricewaterhouseCoopers as its auditors.

It has been reported that four key executives have been suspended from duty until the investigation is complete, including Chris Bush, the UK managing director for Tesco, according to several publications.

Tesco was planning to release its interim results on October 1 but has pushed the date back to October 23.

This will be the third profit warning that company has made this year. The second came in August and the stock dropped 8% then.

Tesco has been losing market share to other retailers that have been embroiled in heavy price wars that have been raging for months now. Middle ground retailers seem to be hit the hardest with competition from discounters Aldi and Lidl which continue to grow.

In August Tesco recorded a 4% decline in sales 12 weeks to 17 August according to Kantar Worldpanel figures.

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