London - Tesco reported a bigger than expected hole in its accounts on Thursday after finding mistakes in booking income had gone back further than initially thought, forcing Britain's biggest grocer to scrap its full-year profit outlook.
Tesco, which has lost 20 percent of its market value this month after the accounting mis-statement compounded three earlier profit warnings, scrapped the outlook as its second-quarter underlying domestic sales fell 5.5 percent.
Tesco shares dropped sharply at the open, down 4.5 percent in the first minutes of trading.
Tesco, once the unstoppable juggernaut of Britain's retailers, has in recent years been battling fierce competition and rapid changes in the way Britons shop.
The 5.5 percent fall in organic British sales compared with a 3.8 percent drop in the first quarter, which was described at the time as the worst performance in 40 years.
“Our business is operating in challenging times,” said chief executive Dave Lewis, who was only drafted in to run the group on September 1.
“Trading conditions are tough and our underlying profitability is under pressure.”
Tesco said last month it had discovered an overstatement in its first-half profit forecast of 250 million pounds (R4.4 billion) due to the way it booked payments from deals with food suppliers, sending shockwaves through the industry.
After finding that the accounting practice had gone back further than expected, it said on Thursday the overall impact had now risen to 263 million pounds.
The investigation by Britain's financial regulator is ongoing.
Richard Broadbent, chairman since 2011, said he would step down when Tesco's management transition was complete and its new business plans were in place.
“I will begin now to prepare the ground to ensure an orderly process for my own succession at that time,” he said.
'BLACK HOLE'
Britain's grocers are facing a major change as more consumers shop online and from multiple providers.
But the accountancy black hole and a series of management changes have created a sense of turmoil at Britain's biggest private employer.
The accounting scandal related to the way Tesco booked payments from deals with food suppliers early, while at the same time pushing back the recognition of costs.
Lewis has called in accountants Deloitte to carry out an independent investigation along with legal advisers Freshfields.
Eight senior members of staff, including UK managing director Chris Bush have been suspended, in a serious blow to a firm which should be gearing up for the key Christmas trading period.
Bush and the suspended staff have not commented publicly.
Having grown rapidly through the 1990s, Tesco lost its way in the late 2000s as it cut back on investment at home to expand abroad.
It then further damaged its appeal by favouring investors over shoppers with price hikes during the economic downturn.
The group is now being squeezed by fierce competition from discounters Aldi and Lidl at the lower end of the market as well as by rivals such as Waitrose and Marks & Spencer at the top, and by the changing British shopping habits.
The big out-of-town stores it long championed are now less in demand, with more people preferring to shop little and often at local stores or online, meaning the group is set to report its third straight year of decline in trading profit.
The group said it was reviewing all opportunities to generate value and create financial headroom following speculation that it could look to sell assets to raise cash.
Tesco said group trading profit of 937 million pounds for the 26 weeks to August 23 was down 41 percent at actual exchange rates. - Reuters