Can Tesco Turn Around A Disastrous 2014?
For anyone who owned a significant amount of stock in Tesco, 2014 was not exactly a great year as the second largest retailer in the world (by revenue) was having issues. But what were they?
Under the surface was a bookkeeping scandal wherein the company misreported some £263m in revenue for the first two quarters of the year. That led to reassignment of much of the senior management and was topped off by the Financial Reporting Council (FRC) announcing in the final quarter of the year, that they will be auditing Tesco’s numbers for 2012, 2013, and 2014. All in all, the stock price of the British superstore fell by over 50% over the course of the year.
Most of the issues stemmed from a lack of investor confidence due to "accounting irregularities" and what can only be cooked revenue statements. And as you know there is nothing like bad book keeping practices to get investors running for the hills!
Investigations into Tesco numbers reveled the supermarket giant had been logging profits on special promotions from different suppliers before the sales had been made. At the same time, analysts say the company was likely pushing the cost the promotions further into the future. Such “creative” bookkeeping not only reflected poorly on the company in the eyes of investors, but also served to erode Tesco’s supplier relationships.
For 2015, the focus of the company will be to restore healthy supplier relationships and investor confidence. Dave Lewis, Tesco’s new CEO, announced the first step in that plan with the introduction of the “Tesco Supplier Network”. The tool launched on 22 January is designed to help the network of 5,000 suppliers worldwide “connect directly with Tesco teams.” Two pre-existing websites are being combined into one in order to centralize communications and promotions with each supplier. In simpler terms, the hope is that this supplier network website will help keep more accurate timing between managers at Tesco and the promotions from suppliers. This would theoretically prevent any future hundred million pound accounting issues. And this first step in 2015 is already helping to boost investor confidence.
Since Tesco announced the creation of the supplier network share price has increased by 35pc. However, a shiny new website is not all that Tesco will need to recuperate from 2014. Mr. Lewis stepped in to shake things up, and that’s exactly what he’s been doing. As a turn-around specialist, Lewis has experience in making the hard, sometimes harsh, decisions that are required when fixing such a large organization. One often hears of major job cuts among the lower ranks of large companies facing restructuring, but Lewis has also struck at the senior director level. Demotions or layoffs could affect up to 120 people carrying high levels of responsibility within the company. Tesco plans on cutting its running costs throughout this year by slimming down their human capital, shutting down 43 unprofitable stores, and cancelling plans for another 49 stores that had been scheduled.
Disclosure: None