Tesco, Sainsbury’s – the bad news just keeps coming
Another morning, another slug of red ink on the stock market listings of Tesco and Sainsbury's. Both share prices are down as investors digest yet more bad news.
For Tesco, the mis-statement of its August profit forecast by as much as £250m just became a whole lot more serious.
The Financial Conduct Authority has announced a formal investigation.
That means the regulator considers that the information Tesco sent it in September on its accounts warrants the full use of its powers.
It can now compel Tesco to provide any documentation, including phone records, connected to the mis-statement.
The FCA can also order executives to attend interviews as part of the investigation.
The regulator's powers cover stock market listing rules, including the issue of disclosing misleading information.
It can take action against firms or against individuals "knowingly concerned" in issuing incorrect statements. Fines can follow and executives can be barred.
To be clear, no wrong-doing has yet been found and may not be. The problems could well have a more benign explanation.
Two other enforcement agencies are maintaining a watching brief over Tesco - the Serious Fraud Office (which will investigate if there is evidence of fraudulent behaviour) and the Financial Reporting Council, which governs accounting rules.
The FCA's investigation is likely to take a number of months. It could mean that Tesco is unable to be as forthcoming with its investors as it might like at its half-year results on October 23.
By then it will want to reassure the market that the profit numbers it is publishing are robust.
And to do that the retailer will need to reveal as much as possible from its own inquiry into the accounting problems by the auditors Deloitte and the legal firm, Freshfields.
Arch-rival Sainsbury's delphically twisted the knife this morning when it said that it had "100% confidence" in its accounting methods.
Mike Coupe, the new chief executive, said that as the former chief commercial officer of the retailer, if there was a problem he would know about it.
He also said that Sainsbury's had the "right values" to ensure that internal controls were as they should be.
John Rogers, the chief financial officer, also said that as far as he was concerned there was no ambiguity or "grey areas" in the rules.
Tesco appears to take a slightly different view. In its 2014 annual report, its audit committee said that there was a degree of "judgement" in how commercial income (the amounts demanded from suppliers for promotions, among other things) is accounted for.
It will be for the various internal and regulatory inquiries to decide who is right.
On the matter of its own sales, Sainsbury's was on less robust ground. Like-for-like sales (actually a marker of revenue flowing through the cash tills rather than a comparison of the number of items sold) are down 2.8%.
Stick fuel in there, and sales are falling just over 4%.
To see how quickly the retail environment has worsened for Sainsbury's, it is worth returning to the second quarter statement it made this time last year.
In 2013 the retailer announced that total sales for the quarter were up 5% (the same figure today is a fall of 0.8%) and like-for-like sales were up 2%.
That is quite some change.
Yes, Sainsbury's is suffering from the incursions of the discounters, Aldi and Lidl.
But another major issue is the spectre of more general food deflation, much of it caused by a strong harvest across the northern hemisphere and pretty flat commodity prices.
Despite online sales up 7%, general merchandising sales up 6.5% and convenience store sales up 17%, Sainsbury's, like its competitors, is suffering from a deflation spiral caused by falling prices.
This, of course, is good news for consumers.
Mr Coupe has promised the results of a strategic review at the retailer's half year results on 12 November.
Investors will want to know how he is taking the fight to the discounters. And when he expects those like-for-like sales to turn around.
As Julie Palmer, of the restructuring firm Begbies Traynor, said, Sainsbury's will want to reassure shareholders that they are not "sleepwalking into a Tesco-like crisis".