Tesco vows to improve supplier relations as it issues profit warning

Tesco has issued a profit warning, anticipating that group trading profit for the financial year ending February 2015 will not exceed £1.4bn.

The supermarket had suggested full-year profitability would be impacted in its interim trading statement on 23 October 2014. Analysts had projected profits would be in the range of £1.8bn to £2.2bn.

It continues to be plagued by problems arising from a £263m profits overstatement, which has seen a number of senior executives exit the business and the resignation of chairman Sir Richard Broadben as well as an investigation by the Serious Fraud Office.

In an effort to turn things around chief executive Dave Lewis has implemented several new policies and procedures to ensure “revenue recognition is transparent and appropriate”.

"Tesco is focused, and will continue to focus, on doing the right thing for customers. This means running our business in a way that everything we do creates sustainable value. Whilst the steps we are taking to achieve this are impacting short-term profitability, they are essential to restoring the health of our business. We will not engage in short-term actions that compromise in any way our offer for customers,” he said.

The crux of the profit error lay in Tesco’s arrangement with suppliers for price promotions. Analysts have suggested that the retailer had been logging the profits from those promotions early while pushing back the costs.

However, Lewis stated that he has embarked on a drive to build stronger long-term relationships with its suppliers and has retrained its "entire team" to invest further in its service.

“We still have much to do but are making good progress in developing our plans to improve the long-term positioning of the Group and I will share more of that on the 8 January. Our priorities remain restoring competitiveness in the UK, protecting and strengthening the balance sheet and rebuilding trust and transparency."

Shares in the group tumbled 16 per cent on the news.

Last week the supermarket revealed a major senior management shake-up which saw the back of chief creative officer Matt Atkinson.

Get The Drum Newsletter

Build your marketing knowledge by choosing from daily news bulletins or a weekly special.