Tesco issued its third profit warning in a month this week. And this one was a real shocker. Britain's biggest retailer revealed that it had overstated its estimated first-half profits by almost 25% £250m, and that it was asking accounting group Deloitte to investigate.
The shares plunged by 12% in a day to an 11-year low. Four senior managers have been suspended, including the head of the UK business, where the accounting hole appeared. Dave Lewis, the new chief executive, has just started his tenure at the supermarket. A former Tesco grandee described the affair as "mind-boggling".
What the commentators said
It didn't help that Tesco "retreated into the worst kind of corporate gobbledygook" to explain why it had overstated profits so massively, said The Independent. In plain English, Tesco was counting money it hadn't yet earned, while delaying the reporting of costs already incurred.
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"It is the sort of shabby accounting scandal more commonly found in the lower reaches of the Alternative Investment Market" than at one of Britain's "bluest of blue chips".
Yet, Tesco investors "can't say they weren't warned", said Alistair Osborne in The Times. Last year, Cantor Fitzgerald analyst Mike Dennis issued two reports asking how a company with rising costs and falling sales could maintain a 5.2% UK profit margin.
It's worrying that "this came to light so late", said Lex in the Financial Times. The final first-half numbers are due soon. Last week "the finance department should have been fine-tuning", not finding big holes.
The managerial rot goes deeper, said Luke Johnson in the FT. Among the ten main board members, not one, including Lewis, has executive experience as a retailer, or practical experience of shopkeeping. "Very experienced, well-networked retail veterans might well have noticed something was amiss a little earlier."
Let's hope, said Alex Brummer in the Daily Mail, that the investigation won't uncover errors going back years. Corporate history suggests we can't be too confident.
As things stand, concluded Lex, it's hard to have much faith in past profits, or, for that matter, future margins and profitability. "The whole structure looks like it is subsiding."
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