Tesco has sought to soften the blow of its profit warning today by highlighting the impact of its renewed focus on service, product availability and price.
The multiple said it expected group trading profit for the financial year ending February 2015 not to exceed £1.4bn, compared to market expectations of between £1.8bn to £2.2bn.
The profit warning follows its recent admission that it overstated its profit forecast by £263m.
Tesco said its new commercial approach would underpin stronger long-term relationships with its suppliers while ensuring financial transparency.
“In addition, we have invested further in service, with more than 6,000 new colleagues in store, increased product availability on key lines and invested in price - all aimed at enhancing our customer offer. The early feedback from customers is encouraging,” the company said in a statement today.
CEO Dave Lewis said: “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.”
Professor Andre Spicer of Cass Business School said Tesco was paying the price for unethical business behaviour.
“Fortunately Dave Lewis has started to grasp the nettle. He publicly named and shamed illegal behaviour. He has started to restructure where the company makes money. Instead of charging suppliers, the focus is now on consumers,” he added.
“However there are underlying structural issues that will prove harder to tackle. New kinds of competitors, rising food prices, a declining middle class and changing patterns of how we shop all represent a full frontal challenge to Tesco’s business model. These factors are beyond the control of the CEO. They will require some careful navigation skills in the future.”