Tesco's profit down 92 % as scandal continues | RetailDetail

Tesco's profit down 92 % as scandal continues

Tesco's profit down 92 % as scandal continues

British market leader Tesco has published horrible 6-months results: its British like-for-like turnover fell 4.6 %, while its turnover plummeted 92 %. The damages of the accounting manipulation were bigger than previously anticipated.

Accounting scandal much larger than expected

A month ago, Tesco announced that the previous 6-month profit forecast was 320 million euro too high because of an accounting error. Deloitte research now revealed that the accounting manipulation had been going on for quite a while. 

 

In the first half of Tesco's fiscal year, 118 million pounds of fictional profit had been created and the year before, 70 million pounds of fictional profit had been written into the books. Deloitte found similar errors in the years before that, leading up to 75 million pounds. In total, some 263 million pounds (335 million euro) was portrayed erroneously as profit.

 

The worrisome fact is that this has been going on for quite some time and that the consistent manipulation of numbers had not been found up until now. It took a whistleblower to uncover the truth, and even his warnings went unheeded during the reign of CEO Philip Clarke. As soon as Dave Lewis took charge of Tesco, the truth came out and the company now has to deal with a huge accounting scandal.

 

President Broadbent resigns

Tesco's president Sir Richard Broadbent now feels the need to resign, although he won't leave immediately. As soon as Dave Lewis has uncovered every problem and has come up with a future-proof business plan, Broadbent will step aside.

 

This leaves Lewis pretty much isolated at the top of his company. Obviously, he has no need for contaminated directors and he has to wipe the slate clean, but he lacks managerial retail experience. The former supplier is now a retail CEO in a period of crisis, in desparate need of experienced assistance.
 

CEO Dave Lewis's three priorities

To make matters worse for Tesco, there is now a culture of fear because of the thorough research into the scandal. Lewis has apparently asked his staff not to delete any correspondence or to shred paperwork from the past. Nevertheless, Lewis is taking matters into his own hands and has listed three priorities: recover its British competitive position, protect and improve Tesco's results and start the long road back to transparancy and trust in Tesco's brand.

 

Plenty of challenges for the new CEO, who will have to start over after this false start. British customers have ignored the market leader in huge droves, which can be seen in the 4.6 % like-for-like turnover drop over the first 6 months - and even worse: the group's EBITDA dropped 92 % to 112 million pounds (142 million euro).

 

The profit drop can partially be explained because of the updated profit forecast, as Tesco wrote off a 527 million pounds (670 million euro) sunk cost, but even without this correction, Tesco's first half profit is still 46.6 % lower than in its previous fiscal year.

 

Not only its British operations have suffered: Asian and European turnovers have dropped, while operating profit has also dropped in Asia. European operating profit has grown, not because it has managed to cut costs but because of lower depreciations.

 

Tesco's online turnover grew 11 % in Great Britain, while its like-for-like turnover in British Tesco Express stores dropped 0.8 %. This can still be considered growth, but compared to the average 5.2 % growth for this store formula (according to IGD), it is paltry.

 

These numbers are Tesco's start of a very long road toward recovery, like its CEO Dave Lewis has said. Will he given that time, seeing how investors usually have knee-jerk reactions to bad news concerning public British enterprises? The last thing Tesco needs is the dismissal of a CEO after a bad start...

Questions or comments? Please feel free to contact the editors


Suitsupply suffers losses because of expansion

15/05/2018

Dutch Suitsupply has experienced a decent turnover growth last year, but its net result tumbled below zero because of its huge investments. Nevertheless, that is the only way forward according to its founder, whose focus is still fixed on the United States.

Starting this Friday, Belgium has its own national e-commerce event

15/05/2018

Move over, Black Friday! This week, Belgium launches its own national e-commerce event as Jack & Jones, Kiabi, La Redoute, Sarenza, Tape à l'Oeil and Veritas organise the first Belgian Friday.

H&M is turning to algorithms to boost sales again

14/05/2018

In an effort to reverse the decline in its worldwide sales, H&M is using technology that will help the world’s largest clothing brand stock its stores more efficiently, sell more effectively and adapt more quickly to current consumer trends.

Zalando's profit wiped away in first quarter

08/05/2018

German online retailer Zalando saw its first quarter profit completely wiped away: last year's 5.1 million euro net profit turned into a 15 million euro loss. Turnover grew 22 %, investments being the cause for both.

Strong online growth for Hugo Boss

03/05/2018

German fashion brand Hugo Boss managed growth in every region in the first quarter. Group turnover grew 5 % to 650 million euro, partially thanks to strong web shop sales.

France will impose recycling for unsold clothing in 2019

02/05/2018

The French government plans to impose a ban on the disposal or destruction of unsold clothing by fashion companies. The measure extends the rules already in place for food waste to the spillage of clothing.