Tesco Admits £250m Profit Overstatement

Tesco (Xetra: 852647 - news) has suspended four senior executives after it revealed an accounting error overstated its first-half profit by £250m.

CEO Dave Lewis said that “a number of people” have been suspended while an internal investigation is underway, including the four senior executives.

Shares (Berlin: DI6.BE - news) were down more than 11% in early trading, before easing slightly to around 8% down. Its stock price is down more than 43% in the last year.

Britain's biggest supermarket chain said it has commissioned an independent review to uncover the cause of the profit miscalculation.

Tesco said in a statement: "On the basis of preliminary investigations in to the UK food business, the board believes that the guidance issued on 29 August 2014 for the group profits for the six months to 23 August 2014 was overstated by an estimated £250m.

"Some of this impact includes in-year timing differences. Work is ongoing to establish the extent of these issues and what impact they will have on the full year.

"The board has asked Deloitte to undertake an independent and comprehensive review of these issues, working closely with Freshfields, the group's external legal advisers.

"We will provide a further update at our interim results, which will now be announced on the 23 October 2014."

Tesco has issued a series of income warnings in the last year, with the latest at the end of August when it said trading profit was forecast to be around £1.1bn.

That profit figure is now likely to be reduced to £850m.

Sky News City Editor Mark Kleinman described the accounting error as a "humiliation" for the embattled group.

Regulators are now expected to launch their own inquiries into the profit over-estimation.

The company has come under increasing pressure in the ongoing supermarket price war, with the rise of discounters Aldi and Lidl, and margin-squeezing of the big four chains.

Chief executive Dave Lewis, who started in the role on September 1, said: "We have uncovered a serious issue and have responded accordingly."

Mr Lewis took control of Tesco after former boss Philip Clarke failed to halt a slide in profit and sales.

Mr Clarke was ousted by the Tesco board in late July as he was preparing to celebrate 40 years with the retailer.