Compounding an already miserable year for supermarket giant Tesco, the company yesterday announced a 92% fall in pre-tax profits in the six months to the end of August.
The slump in profits came partly as Tesco revealed an even bigger hole in its profit and loss account than previously disclosed.
Last month, the company announced that, as a result of an accounting error, it had overstated profits by £250m (€316.8m) — a figure it has now revised to £263m following an investigation into the matter by Deloitte.
The anomaly relates to £70m covering the 2013/14 financial year and £75m prior to that period.
Following a string of negative announcements in the past number of years, culminating with yesterday’s profit estimates, the company said its chairman Richard Broadbent is preparing to step down, saying: “The issues that have come to light are a matter of profound regret.”
Tesco chief executive Dave Lewis said: “Our business is in challenging times. Trading conditions are tough and our underlying profitability is under pressure... Whilst my review of the whole business continues, three immediate priorities are clear: To recover our competitiveness in the UK, to protect and strengthen our balance sheet, and to begin the long journey back to building trust and transparency into our business and our brand.”
In its interim statement, Tesco highlighted the Irish market as being particularly difficult and identified the company’s performance here as an impediment to profit growth in its European operations.
In the first half of the year, its Irish sales fell by 6.4% compared to less than 2% across Europe.
Tesco Ireland — which employs almost 15,000 people across 146 stores and 22 petrol stations — reported revenues of €1.27m for the first half of the year, starting February 23.
“The pressure on sales, particularly in Ireland and Slovakia, held back any further profit growth [in Europe]. The Irish market remained challenging, with intense competition led by the discounters and high levels of couponing,” the report stated.
Kantar Worldpanel figures released last month revealed that while Tesco retained its position as the dominant retailer in Ireland, its market share declined from 26.7% to 25.2%, year-on-year, amid continued pressure from discount chains Aldi and Lidl whose combined share of the market approached 17%.
Trading profit in the UK — the supermarket’s biggest market — declined by more than 55% to £499m, with a drop in sales of 2.6%.
The fall in profitability was down to reduced like-for-like sales and cost base inflation, the company said.
“Whilst a weakening of the UK grocery market and the more structural trends towards proximity and online retailing have been headwinds across the industry, our relative performance also fell short of our initial expectations,” the interim report reads.
Shares in the retailer opened 6% lower yesterday as it informed the market it would not be providing a full-year profit guidance due to “a number of uncertainties that limit visibility for future performance”.
Tesco has endured a tumultuous time in the past three years, with the retailer issuing its first profit warning in almost 20 years in January 2012, followed in April 2013 by a fall in post-tax profits of almost 96%.
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