Business Sales Strong, Profits Hit by Higher COVID-19 Costs
Tesco announced today that its annual profits fell by 20% on higher costs amid the COVID-19 pandemic and national lockdowns. Lower profits were reported by the grocery store despite a rise in business sales of 7% to £53.4 billion ($73.5 billion). The business recorded a 6.3% jump in the company’s comparable sales.
Tesco said it earned £825 million ($1.13 billion), which is about 20% lower than the £1.03 billion ($1.42 billion) reported in the year-ago period. Still, the grocery store showed “incredible strength and agility” during the COVID-19 outbreak, and it further gained market share from all of its major rivals.
“While the pandemic is not yet over, we're well-placed to build on the momentum in our business. We have strengthened our brand, increased customer satisfaction and improved value perception,” said Chief Executive Ken Murphy.
“We have doubled the size of our online business and through Clubcard, we’re building a digital customer platform. Sustainability is now an integral part of our business strategy and we’re doubling down on our efforts to reach net zero.”
The supermarket company saw high demand for food and hygiene products in the first half of its fiscal year as people spent more time at home. However, the COVID-19 outbreak also yielded costs of £892 million ($1.22 billion) in the UK alone as Tesco was forced to hire more staff to cope with the rising demand.
This also includes a charge of £535 million ($736.2 million) as the supermarket business gave up business rates relief from the UK government.
"In order to [trade through the pandemic] they've had to spend a lot of money looking after the health of both their customers and their staff and that's been very, very costly," said Richard Hyman, a partner at the retail consultancy TPC.
The grocery store recorded higher business sales in the UK and the Republic of Ireland (+8.6%), while online sales surged 77% to £6.3 billion ($8.67 billion). The grocery store will continue to invest in a shift to digital sales as the capacity to process online orders has more than doubled over the year to 1.5 million slots a week.
The British company added that it expects its operating profits to recover to levels in the 2019/2020 fiscal year. Moreover, the grocery store business proposed a full-year dividend of 9.15p per share — the same as the last year.
The dividend payout reflects “the importance the Board places on dividends paid to shareholders and its confidence in future cash flows,” the company added in the statement.
The company also reported a £175 million ($240.8 million) loss at its subsidiary Tesco Bank, representing a huge swing compared to a £193 million ($265.6 million) profit recorded a year earlier. A loss represents the "material decline" in customer spending because of the COVID-19 pandemic, the company added.
Shares of Tesco fell 2.5% in London today following the release of a full-year earnings report.
The UK’s largest grocery store chain Tesco reported higher business sales for its full-year to end-March. However, profits were down by almost 20% as the COVID-19 outbreak yielded higher costs.
About the Author
Mariliana has an MSC in Consumer Analytics and Business Strategy. She has a special interest in fast-moving industries and Big Data.