The UK's biggest supermarket and the second-largest retailer globally revealed it overstated its profits by £250 million in September. The company appears to have wrongly booked promotional payment and rebate contracts from suppliers as if they were revenues.
The news came as a shock to investors, who dumped the stock on the news a few weeks ago. But had they read Dennis' note of Oct. 13 last year, they might have had a chance to sell TSCO when it was at roughly 368p. (It's currently at 184p.)
Here is the crucial passage from Dennis' letter to investors. Note that he says Tesco's profits appear to be bolstered by payments from suppliers, not from the actual strength of its business from shoppers. And he predicted it would hurt profits:
Cantor Fitzgerald
The note downgraded Tesco from Buy to Hold.
Business Insider wanted to ask Dennis to elaborate on his skepticism over the supplier payments but he did not respond to a message requesting comment.
To be fair, Dennis issued a lot of other notes between then and now, and they didn't mention supplier payments much. And Tesco's overall revenues were weakening, and its market share slipped, over the period. So the note on suppliers was really part of Dennis' overall view of the company, not his entire case against Tesco.
But still. The issue was apparently identifiable for anyone who cared to pay close enough attention 11 months before Tesco finally came clean, and five months before Tesco's annual report contained a vaguely worded warning about a "risk of manipulation" in accounting for such payments.