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COVID Wipes Out 20% Of Tesco's Pretax Profit But Sales Surge

Published on Apr 14 2021 8:59 AM in Retail tagged: Featured Post / Tesco

COVID Wipes Out 20% Of Tesco's Pretax Profit But Sales Surge

Tesco, Britain's biggest retailer, reported a 20% drop in full-year pretax profit as the cost of adapting the business for a pandemic wiped out its "exceptionally strong" sales.

With restaurants and cafes shut for large parts of 2020, the supermarkets in Britain saw a surge in demand as shoppers stocked up on goods to eat at home during the lockdown.

But that rapid shift to serving people online cost £892 million in Britain alone, hitting its bottom line.

Profit before tax came in at £825 million, down 19.7% on the year before. At an operating profit retail level it did however come in above forecasts.

Chief Executive Ken Murphy said Tesco had shown incredible strength and agility.

"While the pandemic is not yet over, we're well-placed to build on the momentum in our business. We have doubled the size of our online business and through (the loyalty) Clubcard, we're building a digital customer platform."

UK and the Republic of Ireland

In the UK and the Republic of Ireland (ROI), total sales grew by 8.8% as Tesco said it saw a shift towards ‘in-home’ consumption.

Sales in the first quarter grew by 9.4% due to an initial period of stockpiling at the start of the first national lockdown, before stabilising in the second and third quarters as the ‘out of home’ market partially re-opened, the company said in a statement.

As the UK entered a second and third national lockdown, sales re-accelerated into the fourth quarter and it saw sustained elevated sales throughout this period.

Demand was particularly strong in fresh food, grocery and beers, wines and spirits categories across the year.

In response to the significant demand peak early in the year, it worked with our supplier partners to simplify our offer, prioritising availability in essential products and categories, it added.

The company highlighted that it reduced promotional participation from 36% to 21% through the year as it focused on every day great value for customers.

Like-for-like Sales

The retailer reported a 6.3% rise in group like-for-like sales, including a 7.7% lift in its core British market. UK online surged 77% to £6.3 billion as it doubled capacity to 1.5 million delivery slots a week.

It said that while some of the additional sales volumes would fall away as COVID-19 restrictions ease, it expected a strong recovery in profitability and retail free cash flow as the majority of the pandemic costs would not be repeated.

While uncertainty around a recovery makes it difficult to predict the year ahead, Tesco said its best estimate is that retail operating profit will recover to a similar level as in the 2019/20 financial year, the year before the pandemic.

It proposed a full-year dividend in line with last year.

Tesco's three major UK rivals - Sainsbury's, Asda and Morrisons - have all enjoyed strong sales over the last year, with coronavirus restrictions forcing many people to work from home.

However, they have also had to endure the costs of additional workers, staff sick pay and in-store measures to deal with the pandemic, which has dented profits.

News by Reuters edited by Checkout. Additional reporting by Donna Ahern. Click subscribe to sign up for the Checkout print edition.

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