Tesco shocked the City today by announcing it had discovered it had overstated its profits by £250m. Four senior executives have been asked to step aside while an investigation is being carried out. Here’s our round-up of how leading City and industry analysts reacted to the news.

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Bruno Monteyne , senior analyst, European food retail, Sanford C. Bernstein

“The issues are due to accelerated recognition of commercial income and delayed accrual of costs. This is effectively timing issues, bringing income forward from future periods and delaying costs to those future periods. One example in which this could happen is “Tesco commercial director of department X is short his profit target; he/she discusses with supplier bringing forward a big promotion, funded by supplier; in return Tesco commits to doing 3 more new product launches in the next reporting period”. If this is the kind of manipulation that happens, then Dave Lewis as a past supplier may have had good prior insight into it.”


Clive Black, analyst Shore Capital

“We are flabbergasted by this development and have no choice but to put our HOLD stance, which we only went up to through Mr. Lewis’ appointment, under review. We expect the market to respond in a penal manner on the Tesco’s shares upon opening, we’ll monitor with interest how the dust settles.


David McCarthy, head of European consumer retail research, HSBC

”The market is unsure what Tesco’s true level of profitability is, to what extent the new CEO may choose to rebase profits, and what today’s news will do to morale and the management team. In short, confidence in Tesco has been  undermined again, downwards momentum is accelerating, and it is unclear whether the real underlying level of profits has yet been found and to what extent the new CEO may choose to rebase profits. Indeed, rather than  working on a repositioning, the CEO currently has another (major) fire to  put out.”


David Gray, analyst, Planet Retail

“My biggest concern is the management changes. Losing people from such powerful positions and bringing in Robin Terrell, who is their multi-channel guy, is a major issue. Yes, Tesco is the biggest multichannel operator, but what is his experience of running its store network?


Julie Palmer, Partner at Begbies Traynor

“Today’s profit overstatement means that in reality Tesco’s interim profits will be around £850 million, almost half the £1.6 billion reported last year, showing that the supermarket giant is in an even more dire financial position than we had previously thought.

“Having earned the nickname “Drastic Dave” after restructuring Unilever UK in 2007, Tesco’s new CEO Dave Lewis will certainly need to take drastic action again if he is to rebuild the Group’s reputation, left in tatters after Philip Clarke’s time in charge. 


Neil Saunders, managing director of Conlumino

“Today’s announcement will further undermine market confidence in a company that has already lost a lot of investor goodwill. Mistakes do happen, but this gives the impression of a company that is not in full control of its internal procedures. It is just not what you expect from a company as large as Tesco.”


Crawford Spence, professor of accounting at Warwick Business School

“This revelation should be interpreted as a sign of distress. Tesco has essentially tried to recognise revenue too early and delay the recording of costs until a later date. Accounting is not a hard science and some of this behaviour is acceptable, within limits. What Tesco appear to have done is push the boat out a bit too far, ending up with revenue that hadn’t really been earned yet and costs that probably should have been booked earlier.


Nick Bubb, independent analyst

The share price recovery seem to reflect the fact that some of the £250m in H1 is a timing issue that will recouped in H2, but it’s all still a pretty shabby state of affairs. And tomorrow’s Kantar figures will be an unhelpful reminder that UK trading is still poor  and that Tesco is still over-exposed to the structural decline of the hypermarket.”