Profit Fall Points To Scale Of Tesco Chief’s Task

There's no getting away from it: today's numbers from Tesco are horrible, whichever way you look at them.

First, the positive spin.

A 4.6% fall in UK like-for-like sales was – astonishingly – better than many analysts had forecast, while a £937m group trading profit was substantially higher than the City expected.

But those glimmers of light will not put the underlying task facing Tesco's new boss Dave Lewis in the shade.

The UK performance in the six months to August 23 was dreadful, and it will take a miraculous transformation to show a significant improvement by the time the company reports full-year results next spring.

Tesco said the like-for-like sales fall was the result of "strong competition across the grocery market, headwinds from price cuts and fewer untargeted promotions".

For most of the last 20 years we became accustomed to hearing those gripes from Tesco's rivals, not the market leader: in itself, that illustrates just how far Tesco has fallen amid intense competition from much smaller competitors in the shape of Waitrose, Marks & Spencer (at the premium end of the market) and discounters Aldi and Lidl.

By one measure – statutory pre-tax profit, which includes one-off nasties – earnings slumped by almost 92%.

Under Philip Clarke, who was sacked as chief executive in the summer, profit declines became wearily familiar to Tesco shareholders, but not on this scale.

Improving things will be made much harder by the absence of eight key executives from the business during the most crucial trading period of the year.

Their enforced (temporary?) departure is the result of an accounting scandal now being probed by the Financial Conduct Authority and other regulators.

Tesco disclosed today that profits had been overstated by a total of £263m, the majority of which relates to the current financial year but some of which dates to prior periods.

That casts a pall over the reign of Mr Lewis's predecessor, Philip Clarke, and explains why the board has decided to delay 'liquidation' payments to him and the former chief financial officer, Laurie McIlwee.

"To be clear, we are not saying that they won't be paid, but the board has made a decision to withhold those payments until the investigations are concluded".

There's further boardroom upheaval in store. Tesco confirmed Sky News' report from earlier this week that chairman Sir Richard Broadbent is to step down next year.

The arrival of a new chief executive and chief financial officer (Alan Stewart, most recently of Marks & Spencer) would, Sir Richard said, "mark the beginning of a new phase for the company".

Tesco shareholders certainly hope so.

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