Tesco’s annual results confirm it saw a healthy rise in sales over the last year after benefitting from increased at-home consumption of food & drink during the pandemic. Profits though took a significant hit from costs relating to operating its business during the crisis, but the group does expect a recovery in the year ahead.
Group turnover (excl. fuel) in the year to 27 February rose 7% to £53.4bn, driven by its core domestic business where sales rose 8.0% to £39.4bn. However, pre-tax profits fell by 19.7% to £825m after Tesco faced extra costs of £892m in its UK & Ireland unit related to staff, safety measures, and ramping up its online services. Its operations in Central Europe also suffered a major hit from trading restrictions and a new sales tax in Hungary.
Looking ahead, Tesco said that while some of the additional sales volumes gained over the year would fall away as Covid restrictions eased, it expected a “strong recovery” in profitability as most of the costs incurred as a result of the pandemic would not be repeated.
In the UK, the group’s like-for-like sales rose 7.7% after benefitting from consumers stockpiling groceries at the start of the pandemic. Figures stabilised in the second and third quarters before re-accelerating in the final weeks of its financial period after the country entered another lockdown.
Tesco highlighted the success of its Aldi Price Match campaign, which has now been extended to more than 500 lines. Its Clubcard Prices promotion was also rolled to over 3,000 products and helped attract two million more users to its loyalty scheme app.
Online sales in the UK surged up 77% to £6.3bn after the retailer doubled its delivery capacity to 1.5m slots a week to meet increased demand during the pandemic.
Meanwhile, the group’s Booker unit suffered a 0.8% fall in like-for-like sales after increased demand from its retail customers could not completely offset a big fall in sales of catering products due to the closure of the hospitality and leisure sectors for much of the period.
In Ireland, like-for-like sales jumped 14.0%, driven by particularly strong growth in its large stores. However, in Central Europe, like-for-like sales fell 0.4%, with Tesco highlighting that customer behaviour was different to that seen in the UK & Ireland markets amid variable trading restrictions
Ken Murphy, Tesco’s Chief Executive, said the group had shown “incredible strength and agility” during the pandemic.
He added: “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. We have doubled the size of our online business, and through Clubcard, we’re building a digital customer platform.”
Shares in Tesco were down 3% in early trading this morning after the retailer warned the uncertainty around the UK’s recovery from the pandemic made it difficult to predict the year ahead.
Ross Hindle, an analyst at Third Bridge investment research firm, suggested that Tesco had been “recast” in the eyes of the public, although challenges would remain after the pandemic.
“While Tesco’s Aldi price match strategy has been somewhat successful, the competitive threat of the discounters remains Tesco’s biggest risk. The end of the furlough scheme, a potential rise in unemployment, and inflation worries could all send shoppers back to its cheaper competitors,” he said.
NAM Implications:
- Ken Murphy: “Customers shopped, on average, a third less frequently, but when they did shop, their baskets were about 50% bigger.”
- i.e. Social distancing sales-resistors caused shoppers to limit trips but encouraged combining pharmacy + grocery per trip.
- Profit before tax came in at £825m, down 19.7% on the year before.
- i.e. despite being able to sell mainly at full prices in Lockdown 1…
- Online sales in the UK surged 77% to £6.3bn as it doubled capacity to 1.5 million delivery slots a week.
- i.e. Watch (and secure your fair share of) this space.
- Tesco reported a 6.3% rise in group like-for-like sales, including a 7.7% lift in its core British market.
- i.e. compare with your Tesco performance…
