Tesco issues another profit warning | RetailDetail

Tesco issues another profit warning

Tesco issues another profit warning

Tesco has lowered its profit forecast once more: it believes it will not reach more than 1.4 billion British pound (1.8 billion euro) in its current fiscal year, which is well below its previous 1.94 billion pounds (2.5 billion euro) forecast.

Plummet after "creative accounting"

Compared to its full fiscal year 2013/14, which ended in February 2014, the drop in profitability is worrisome: it reported a 3.3 billion pound (4.2 billion euro) company profit back then, even though it has been going through an accounting scandal since September.

 

Last year's numbers were actually the result of 'creative accounting': Tesco had created more than 70 million pounds of non-existing profit in its previous fiscal year. In the first part of the current fiscal year, it added another 118 million pounds of non-existing profit, which has cost seven senior managers their job and has forced Tesco to go through some rough weather.

 

Better safe than sorry

It is surprising to see Tesco lower its profit forecast, even after the numbers were taken into account and it had already lowered its profit forecast on 23 October. 

 

It is betting safe and has decided to accept a correction, in order to avoid slipping up again when it reveals its 2014/2015 numbers. Chairman of the board, Dave Lewis, explains the lower profit forecast is part of investments in the "Tesco of the future".

 

Invest in lower prices and better service

"Tesco is focused, and will continue to focus, on doing the right thing for customers. This means running our business in a way that everything we do creates sustainable value. Whilst the steps we are taking to achieve this are impacting short-term profitability, they are essential to restoring the health of our business", Dave Lewis said.

 

Tesco has tightened its bonds with suppliers, which will have received a boost when Matt Simister returned to his position as head of Group Food Sourcing. It has also invested in better product availability, lower consumer prices and better customer service by hiring another 6,000 employees.

 

£1.4 billion profit (or maybe even less)...

On 8 January 2015, CEO Dave Lewis will present his plans to improve Tesco's position structurally and by then, it will have become clear how the company has fared in the all-important Christmas holiday period. "Our priorities remain restoring competitiveness in the UK, protecting and strengthening the balance sheet and rebuilding trust and transparency", Lewis said.

 

In any case, Tesco has lowered expectations once more with the forecast of a 1.4 billion pound operational profit. When looking at the statement literally, the company says trading profit "will not exceed 1.4 billion pounds", which means it could even be lower. If that were the case, much lower than 1.4 billion pounds could prove detrimental (again).

Questions or comments? Please feel free to contact the editors


Adidas wants to strengthen bond with small retailers

15/07/2018

German sportswear giant Adidas says it wants to strengthen its bond with small-scale retailers after they claimed Adidas is too aggressive in pushing its web shop, especially as they feel the brand is favouring large international chains as well.

Several candidates to take over Men at Work

12/07/2018

There are several takeover candidates for both the Dutch and the Belgian stores of the bankrupt clothing chain Men at work. The curator is confident an agreement should be reached today in Belgium.

Burberry sales increases thanks to new strategy

11/07/2018

The new strategy of the British fashion brand Burberry starts to render: the company had a 3% increase of revenue in their own stores last quarter. In total, Burberry has now a revenue of 479 million pounds (520 million euros).

FNG moves to Brussels stock exchange

06/07/2018

Belgian fashion group FNG has collected 60 million euros by issuing new shares. The new shares will be traded on the Amsterdam Stock Exchange and - for the first time - on the Brussels Stock Exchange as well.

Athleteshop ends its run

02/07/2018

Dutch sports web shop Athleteshop has filed for bankruptcy, after an abysmal year in which strings of complaints led to all sorts of problems. Social media and review sites were flooded with customers complaining about late deliveries.

Alibaba goes Turkish with stake in Trendyol

29/06/2018

Alibaba is the new strategic partner of Trendyol, one of the best-known e-commerce companies in Turkey. With this partnership, the Chinese retailgroup strengthens its presence in Europe.