Just one short month ago, I took a fresh look at Tesco (LSE: TSCO) and suggested that the supermarkets shares might only be worth 200p.
I didnt expect my grim outlook to become reality quite so quickly, but Tescos shares slid on Monday after the firm revealed that it had overstated its first-half profit guidance by an estimated 250m, and look where we are today under 200p.
Essentially, what appears to have happened is that Tesco recognised income too soon, and costs too late, flattering its profit forecast for the first half.
How bad is it?
Ive no idea of how deep Tescos accounting problems might run: frankly, Im not sure anyone does.
Tescos new chief executive, Dave Lewis, said that despite nearly three decades of retail experience (at Unilever) he has never seen anything like this before. The supermarket has even had to parachute in new CFO Alan Stewart over two months early, joining today rather than 1 December.
So far, the problem appears to be restricted to the first half of this year, a period when the firms senior management, under newly departed CEO Philip Clarke, would have been under intense pressure to report decent trading.
However, well have to wait until next month to find out whether these problems could affect previous years results.
Is Tesco doomed?
City analysts plunged into full-scale doom mode following Tescos announcement:
Analysts at Espirito Santo suggested that Tesco could eventually generate zero profits in the UK.
Over at HSBC, the banks head of European Consumer Retail Research, David McCarthy, said we believe that Tescos gross margin has been falling rapidly and that this has been artificially hidden.
Time to buy?
However, its important to keep a sense of perspective: Tesco is still a large, important business thats expected to report a trading profit of around 850m for the first half of this year.
Whats more, todays bad news gives Mr Lewis the perfect opportunity to do a kitchen sink job, and release as much bad news as possible when the firms delayed first-half results are published on 23 October, before unveiling his turnaround plan.
In my view, now might be the ideal time to buy Tesco shares, if you can live with the uncertainty regarding the firms accounting problems.
A more prudent approach would be to wait until the supermarkets half-year figures are published on October 23.
Depending on the news that day, I expect to see the firms share price lurch higher or perhaps lower as the market digests Tescos first-half profits and full-year outlook.
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Roland Headowns shares in Tesco, Unilever and HSBC Holdings. The Motley Fool UK owns shares of Tesco and Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.