By Peter Evans
LONDON-- Tesco PLC on Tuesday slashed its full-year profit
forecast as the U.K. retailer continued to pay the price for a
recent accounting scandal and years of underinvestment in its home
market.
Tesco, which vies with Carrefour SA for the title of world's
second-biggest retailer behind Wal-Mart Stores Inc., said group
trading profit for the year to February wouldn't exceed GBP1.4
billion ($2.19 billion). Analysts had previously forecast a figure
of around GBP1.94 billion.
The reduced forecast marks Tesco's fourth profit warning in six
months and sent the company's shares plummeting in early London
trading. The shares touched a 15-year low of 155 pence and around
11:45 a.m. GMT were down 9.7% to 169 pence, near 11-year lows.
Tesco's latest profit warning rocked the U.K. grocery sector.
Shares in J Sainsbury PLC and Wm. Morrison Supermarkets PLC both
fell more than 4% as analysts said other supermarket operators
would see their profit margins tumble as they move to strip out
costs and cut prices.
Tesco said it had in recent weeks implemented new policies and
procedures--including the retraining of staff working in the
finance department--to govern its commercial income to ensure
revenue recognition is transparent and appropriate.
Tesco Chief Executive Dave Lewis said he had led the training
sessions himself but had brought in external advisers in an attempt
to stamp out the accounting practices that led to a GBP263 million
accounting overstatement.
That accounting scandal involved the company overstating a
profit forecast and resulted in the departure of several senior
executives.
Commercial income refers to promotional money, discounts and
rebates from suppliers. Tesco has admitted that in previous periods
it recorded the commercial income on its books as revenue before
recognizing the cost of paying for the goods from suppliers.
Mr. Lewis, who has worked at the company for less than four
months, said in October he hoped to move on from the accounting
scandal and focus on reviving the retailer's flagging U.K.
business. "We will draw a line under the accounting issue as of
now," he said.
But since then, the U.K.'s Serious Fraud Office has said it
would launch an investigation into Tesco's accounting, raising the
possibility of criminal convictions for individuals, or the entire
company.
Tesco also said it had taken steps to improve the competitive
position of its business, investing in adding more than 6,000
employees in U.K. stores, increasing product availability on key
lines and reducing prices.
Tesco is still the U.K.'s biggest retailer by sales but has
faced years of falling market share amid intense competition from
higher-end grocery stores and aggressive discounters.
"We still have much to do but are making good progress in
developing our plans to improve the long-term positioning of the
group," Mr. Lewis said.
Mr. Lewis added that the company would share more details about
the measures it is taking to improve the competitiveness of its
U.K. business on Jan. 8.
Rory Gallivan contributed to this article.
Write to Peter Evans at peter.evans@wsj.com
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