Earlier this month, Tesco spooked the markets when it reported that pre-tax profits had dropped by almost a quarter to £1.39bn in the first half of its financial year.
The supermarket giant blamed a challenging retail environment in central Europe, where profits fell 67% to £55m. But tell that to its investors who, according to the Financial Times, are questioning whether management should also shoulder some of the blame.
Since issuing its first profit warning for decades in January 2012, things have only got worse for Tesco. Cheaper chains such as Lidl and Aldi are giving the former titan a run for its money and its sales are slipping. The horsemeat scandal and the retailer’s failure to conquer the US market also dealt the business another blow.
A top 10 shareholder told the FT that the scale of the recent profit miss, and the pattern of persistent downgrades, raised questions about management’s control of the company.
A top 20 shareholder said: ‘When you miss on that scale, and it has not been flagged, it’s legitimate to ask were there people at the centre aware that things were not going to plan, and if they were, should it have been communicated?’
Laurie McIlwee, Tesco’s finance director since 2009, has borne the brunt of criticism. A top 10 shareholder said: ‘The finance director is not really a world-class finance director. Tesco should have a world-class chief executive and a world-class finance director. People are worried about their management strength,’ the newspaper reported.
Since CEO Philip Clarke took the helm in March 2011, Tesco’s share price has dropped from £4.10 to £3.66. Despite this, Clarke told MT earlier this year that he feels ‘bloody great’.
‘We went through a period of extraordinary expansion; we were rolling out our model across the world. Now we're trying to establish the right relationship with our customers,’ Clarke said. But has it come too late to appease investors?