It's Not Just The Accounts: Absolutely EVERYTHING Is Going Wrong At Tesco Right Now

Tesco's profits for the 26 weeks through to Aug. 23 are out today. As expected, they're not pretty.

The results give us a good look at how serious the world's second-largest retailer's problems are. The company confessed to a massive gaffe in an earlier results release this year, overstating profits by £250 million. Now they've been revised up to £263 million.

But the group was already struggling with a series of extra headwinds before it admitted the blunder in September. It isn't just about dodgy accounting - sales are down both domestically and internationally, and even the company's pension plan is struggling. And the CEO and his managers are restricted from focusing on the underlying business because the accounting probe is such a big distraction, CEO Dave Lewis said today.

Here's everything in the results that show us Tesco is seriously struggling:

• Tesco's new profit restatement means earnings were inflated long before this year. In total, the group overstated profit by £145 million before 2014. That's bad news in that it shows something severely wrong with their usual accounting, not just a hiccup in the first half of 2014. It also might be more negative for the wider industry, if these dodgy methods are standard practice.
• Investors believed they had pretty much already priced in a poor set of new results: shares had already fallen a long way. But they've still found room to drop another 5% today.
• In a note, James Abbot at Accendo Markets sums up the nightmare for investors (emphasis ours): "Blackrock has publicly been dumping the stock, Warren Buffett announced his investment was a 'huge mistake'… Why would anyone take a risk on a company that continues to disappoint in this manner? Fortune often favours the brave, but the stupid?"
  
• It's not just the profits, it's the revenue as well. Topline sales declined 4.5%.
  
• Profit before tax is down to just £112 million, a 91.9% drop. That's less than a third of a percent of overall group sales, which are now at £34.01 billion. That's pretty much as thin as any group's margin gets. If the situation deteriorates any further, it'll make a loss.
• As a result, the upside for shareholders is looking increasingly non-existent. Earnings per share from continuing and discontinued operations are hovering at just 0.07 pence, pretty close to nothing. It's still paying a per-share dividend of 1.16 pence, but that's down 74.9%, and can't last forever if the business continues on this path.
• The group's pension deficit is climbing: it's up from £2.6 billion as of February to £2.6 billion. This is a good example of how such a massive firm can't easily just downsize. Tesco has huge legacy obligations to its army of staff that it can't abandon.
• Tesco's retreat from international business is evident, with sales deteriorating more severely outside the UK. UK sales and trading profits are down 2.6%, while Asian sales are down 8.4%, and they're down 9.3% in the rest of Europe.
• CEO Dave Lewis is hinting that the company is still in crisis mode: he hasn't been able to visit the international parts of Tesco's business because of the investigation, according to the results call.
• It's not just the CEO who is paralyzed. Tesco has lost an entire suite of senior managers, execs' laptops have been confiscated and staff face interrogation from internal and external investigators.