Credit: Derek Harper/Geograph

Tesco pays out $12m to disgruntled shareholders

The supermarket's accounting scandal isn't going away anytime soon.

by Jack Torrance
Last Updated: 26 Nov 2015

The legacy of Tesco’s ever-worse accounting scandal drags on. Today the supermarket agreed to pay out $12m (£8m) in an out-of-court settlement to disgruntled US shareholders, despite refusing to admit any liability.

The shareholders were angry about Tesco’s admission last September that it had overstated profits by £250m (a figure that’s since been revised up to £326m) by manipulating the way it accounted for payments from suppliers. There’s a good chance this won’t be the last time Tesco ends up paying off its backers – similar proceedings are waiting in the wings, including a European challenge that could cost it ‘billions’ and a smaller case in the US.

Tesco’s share price crept up around 1.5% this morning, perhaps in relief that this first suit was settled, and not for a ridiculous sum. But the supermarket’s problems are far, far from over. Despite the ‘drastic’ actions of chief exec Dave Lewis, who was drafted in to turn things around, its sales continue to slide.

In its latest interim results, Tesco admitted like-for-like sales were down 1.1% in the UK, and underlying group profits slid 55% to £354m. According to the latest Kantar Worldpanel figures, Tesco’s market share is down to 27.9%, compared with 29.6% at the beginning of 2013.

Tesco’s share price rebounded as Lewis set about the work of turning things around – closing stores, slashing prices and promising to ‘reset’ the supermarket’s relationship with suppliers. But it didn’t last. In the last six months its shares have lost more than a fifth of their value, even worse than those of Morrisons – which is quite a feat. That contrasts with Sainsbury’s, whose shares have stayed roughly flat.

Credit: Yahoo Finance

Perhaps the gloomiest figure about Tesco’s performance (or the gloomiest you can come up with after playing around on Yahoo Finance for five minutes) is 60.1% - the amount its share price has crashed in the past five years.

That downward spiral began long before anyone at Tesco had even uttered the words ‘profit overstatement.’ Its real problems are more long-term as shoppers change their habits and new competitors have emerged at both the value and premium ends of the market.

Apparently things aren’t getting any easier. Lewis warned last month that the retailers would be hit hard by the ‘lethal cocktail’ of the impending ‘national living wage’, increasingly fierce competition and excessive business rates. The discount supermarkets Aldi and Lidl now command 10% of the grocery market and have plans to keep growing rapidly. Litigation should be the least of Tesco's worries.

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