Fears Tesco profit warnings could lead to further construction cuts

Fears are growing that retailer Tesco will look to further cut spending on construction in the wake of the £250m profit warning it announced this week.

Tesco, one of the largest private clients to the sector, has already slashed planned 2014 capital spending by £400m more than expected, to £2.1bn, in an earlier profit warning in August.

It said then that the cuts would come in part from the slower roll-out of its “store refresh programme”.

This week Tesco said that it was likely to have overestimated six-monthly profits by £250m because of accounting practices which “accelerated [the] recognition of commercial income and delayed [the] accrual of costs.”

A source in Tesco’s construction supply chain said: “They have already hugely cut their spend profile, but they’re still a major client. There are fears what will happen. You can guarantee that the new chief executive [Dave Lewis] and FD [Alan Stewart] are going to be looking at ways of stopping or slowing capital spend.”

This profit warning is thought to relate to rebates Tesco requires from grocery suppliers which will not be forthcoming because of lower sales. While Tesco has in the past asked for rebates from contractors and consultants, supply chain sources said it was unlikely this will be behind the £250m shortfall.