After a shocking announcement Monday morning that revealed a 250 million ($408 million) overstatement in first-half profits, UK-based grocery chain Tesco has suspended senior executives, called in Deloitte to investigate, and alerted the UK's main finance regulator.

The whole thing seems incredibly suspicious for the world's second-largest retailer (by profits and revenues). Tesco's shares have crashed more than 7%, and here's everything we know so far: 

According to the Daily Mails Simon Neville, Tesco's Dave Lewis says he has never seen anything like this in all his years as a supplier.  Four senior executives have now been suspended: Radio Five Lives Adam Parsons says that UK managing director Chris Bush is among them. Lewis wouldn't identify suspended execs, but he confirmed that multichannel director Robin Terrell is now doing Bushs job. The Guardian now says it has identified the other suspended executives, naming UK finance director Carl Rogberg, UK commercial food director John Scouler, and Matt Simister, food sourcing director. Tesco chairman Richard Broadbent wont answer as to when Laurie McIlwee, Tescos current finance director, was last in the office. The supermarket has alerted the Financial Conduct Authority, the UK's major finance watchdog, about the huge disparities.  Broadbent also reportedly said that the company couldn't be sure the 250 million profit overstatement is the full extent of the meltdown.  The chairman has now put himself in the firing line, telling reporters that shareholders "will have to decide whether I am part of the problem or part of the solution," according to the Telegraph. There's a whistleblower involved, according to the Financial Times' coverage: "Mr Lewis told analysts that the investigation had been triggered by a whistleblower within Tesco, stating that 'an individual alarm bell' had gone off." There's no suggestion that Lewis has had any involvement in the issue. He only took up his post three weeks ago, taking over from Phillip Clarke, who felt "enormous relief" to be on his way out. Lewis might now have some questions for him.  It's not yet totally clear how the absurd inflation of profits came about. Tesco says that there was an "accelerated recognition of commercial income and delayed accrual of costs," suggesting that earnings that should not have been included in the first half of the year's results were, and costs that should have been included were left out. Lewis is insisting that his turnaround operation is still ongoing and that this isn't going to stall that. But Rebecca O'Keeffe at Interactive Investor says in a note that investors placing their hope in a reversal of fortunes "will be utterly despondent at the news." Nothing Lewis or Broadbent said has reassured the markets about Tesco's financial strength. At the time of writing, shares are down 8.82% on Friday's close, adding to an already poor year. 

Lewis has been in retail with Unilever and Tesco for nearly three decades, so the fact that he has never seen such an issue is a brutal indictment, confirming that this isn't some sort of run-of-the-mill mistake.

The refusal by Broadbent and Lewis to say the 250 million is the final extent of the problem could also give some backing to analysts at Cantor Fitzgerald, who said that they think the overstatement might be closer to 300 million. 

With more than half a million employees at Tesco, and a new chief executive with a reputation for aggressive cost-cutting, we may be seeing more grim updates from the massive retailer in the near future. 

See Also:

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