Tesco Plc started a probe over accounting practices and suspended four of its senior executives, including the chief of its operations in the U.K., after an employee signaled an overstatement of the companys first-half profit.
Independent outside auditors and legal counsel were called in order to investigate an overstatement of the projections amounting to £250 million ($408.8 million). Tescos stock plunged by 11.6% on Monday to the lowest since 2003, after the retailer revealed that some income was booked before being earned while booking of some costs was delayed. Shares have lost half of their value since 2011.
Tescos newly appointed Chief Executive Officer Dave Lewis revealed that the company has found out a significant accounting issue, which led to the third profit warning in two months.
“We have uncovered a serious issue and have responded accordingly,” Mr. Lewis, who took over the company on September 1st, said in a statement. “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.”
The probe is the latest challenge posed to the newly-appointed chief executive, who took over the helm a month earlier than initially expected, after Tescos former top executive Mr. Philip Clarke was dismissed in July.
The company issued two other profit warnings in the last two months as it continued to lose its grip on the U.K. grocery market amid intensifying competition by discounters Aldi and Lidl. According to three people with knowledge of the situation, the accounting errors are associated with the commercial income received by the company from its suppliers.
Mr. Neil Saunders, an analyst at researcher Conlumino in London – said, cited by Bloomberg: “Today’s announcement will further undermine market confidence in a company that has already lost a lot of investor goodwill. Mistakes do happen, but this gives the impression of a company that is not in full control of its internal procedures. More significantly, it means that performance – which is already extremely weak – is actually much weaker than anticipated.”
Tesco Plc fell by 1.22% to trade at GBX200.52 per share at 07:01 GMT in London, marking a one-year change of -46.68%. The company is valued at £18.65 billion. According to the Financial Times, the 18 analysts offering 12-month price targets for Tesco Plc have a median target of £2.37, with a high estimate of £3.25 and a low estimate of £1.65. The median estimate represents a 3.01% increase from the previous close of £2.30.
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