Tesco issues profit warning

Supermarket chain Tesco has issued a profit warning ahead of its full-year report.

The retailer confirmed that its trading profit for the year will be below market expectations and will not be above £1.4 billion. Forecasts had initially expected a result of between £1.8 billion and £2.2 billion.

Following the profit warning, Tesco’s share price fell by 16 per cent as investors became increasingly concerned over the company’s performance for the last 12 months.

Tesco chief executive Dave Lewis explained the profit shortfall is a result of employing new staff and changing its supply chain procedures.

“We have taken a very deliberate decision not to take short-term measures that would close the profitability gap in the short term, but would not improve relations with customers and suppliers,” he explained.

“While the steps we are taking … are impacting short-term profitability, they are essential to restoring the health of our business,” added Mr Lewis.

Tesco has undergone a number of changes in recent months following the discovery of various accounting irregularities. This led to the retailer cutting its profit forecast for the year to £2.4 billion from £2.8 billion in August.

Also there are concerns that the company could take significant time to recover from its performance in 2014, with investors and customers losing confidence in its operations.

“The chief executive officer needs to simplify the business via UK and international asset sales, then reconnect with suppliers by changing payment terms and lowering his cost of goods and then start on the long road to rebuilding the Tesco brand with shoppers,” Cantor Fitzgerald analyst Mike Dennis told BBC News.

An investigation by the Serious Fraud Office is examining the accounting irregularities at Tesco, while the supermarket chain confirmed it will release its full-year report on January 8th.

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