The UK’s biggest supermarket chain said it had overstated profits by £263m, larger than the £250m it previously stated, and that the accounting issues that led to this had been going on for a number of quarters.
Pre-tax profits came in at £112m. These were also hit by a 4.6 per cent drop in like-for-like sales, worse than the 1.3 per cent fall it saw in the previous period.
Speaking to Marketing Week on a press call following the results announcement, chief executive Dave Lewis said he has spent some of the time since he joined Tesco looking at Tesco’s brand archaeology and what made the brand great in the past. He said this boiled down to “championing the customer”, citing examples such as founder Jack Cohen’s focus on pricing and Sir Terry Leahy’s introduction of the Clubcard.
He said Tesco has not spoken to customers with a consistent message and that changes in the market meant customer perceptions of the brand have changed. However, he believes Tesco has a chance to be a “modern and great brand” again if it can get back to what made it successful in the past.
“Brands start to weaken and lose trust when two things happen. One is when they are inconsistent and the second is when the competition repositions. Tesco has suffered from both but this is a good thing because if we can go back to what made us great and walk the talk customers will remember why they love Tesco,” he added.
“Brands start to weaken and lose trust when two things happen. One is when they are inconsistent and the second is when the competition repositions. Tesco has suffered from both”- Tesco CEO Dave Lewis
Lewis said Tesco is operating in “challenging times”, citing strong competition, headwinds from price cuts and fewer untargeted promotions for the drop in like-for-like sales. Lewis said he is conducting a full business review that will “consider the options” for its assets and what its offering should look like both at its big stores and smaller convenience stores.
Sales at convenience stores were up 0.8 per cent while online sales increased 11 per cent.
Lewis added: “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 brand.”
Tesco chairman Sir Richard Broadbent said he would stand down to “draw a line” under the past, with the retailer on the hunt for a successor. The FCA is conducting an investigation into the accounting error now that Deloitte has finished its work on the extent of the problem.
Tesco admitted to the accounting error last month, blaming it on billing commercial income in the wrong time period. Eight execs, including UK boss Chris Bush, remain suspended in a bid to make the process “transparent” but Lewis said there is no evidence of fraud.
“Deloitte has established the what. Now the FCA will establish the why and the how,” said Lewis.