Tesco saw a sharp slowdown in underlying sales growth during its first quarter, reflecting the tough comparatives with the same period last year when consumers were buying more food and drink from supermarkets for home consumption at the start of the pandemic.
Over the 13 weeks to 29 May, the group’s UK like-for-like sales edged up 0.5% to £10.02bn, down from the growth of 7.7% recorded over its last financial year.
However, compared to the same quarter in 2019, before the pandemic impacted trading, UK like-for-like sales were up 9.3% as the group continued to benefit from people eating more meals at home during the third lockdown. This growth peaked in March at 14.6% but moderated in April and May as restrictions started to ease and the hospitality sector began to reopen.
Tesco highlighted that online demand remained high at 1.3m orders per week with two-year sales growth of 81.6%. One-year growth eased to 22.2%, reflecting the annualization of the surge in online shopping at the start of 2020.
General merchandise and clothing sales, which fell sharply in the first quarter of last year, recovered strongly, up 10.3% and 52.1%.
The group’s Booker business also started to recover as pubs and restaurants began trading again. Overall like-for-like sales were up 9.2% to £1.77bn after its Catering unit saw sales jump 68.1%, helped by better performance of Best Food Logistics. However, the wholesaler’s Retail division saw sales fall 4.3% having seen growth of 23.8% in the prior-year period when consumers were shopping more in local convenience stores.
Meanwhile, like-for-like sales in the Republic of Ireland fell by 6.1% to £641m but were up 13% on a two-year basis. Sales in Central Europe were down 1.6% to £940m year-on-year due to non-food sales being restricted in the Czech Republic, although there was said to be a better performance in Slovakia and Hungary.
Chief Executive Ken Murphy commented: “We delivered a strong performance in the first quarter, even as we lapped the high demand of last year due to the pandemic. We have further strengthened our commitment to delivering consistent, reliable value and to rewarding loyalty, as we extended Clubcard Prices to all Express stores.”
Tesco kept its profit guidance for the 2021/22 fiscal year. The group’s profits took a significant hit last year from costs relating to operating its business during the crisis, but it does expect a recovery this year. Sainsbury’s and Morrisons have also forecast a strong recovery in earnings as the extra costs of the pandemic reduce.
“While the market outlook remains uncertain, I’m pleased with the strong start we’ve made to the year and continue to be excited about the many opportunities we have to create value over the longer term,” Murphy concluded.
However, the group’s finance director warned that sales are likely to fall in the UK as customers return to more normal behaviour by eating out and attending the office. Imran Nawaz said the company anticipated sales would fall by a “few percent” in the year ahead as restrictions eased further.
Commenting on the update, Richard Lim, CEO of Retail Economics said: “These are impressive results against unprecedented growth from last year. Ongoing restrictions around socialising, continued working from home and disruptions across the hospitality sector funnelled spending towards the grocers.
“Despite last year’s surge towards online, the retailer maintained growth in this channel, reflecting significant investment made to boost capacity and consumers’ ongoing appetite for home deliveries. The key question is whether the shift to online will persist beyond the effects of the pandemic. With one in ten consumers having tried online grocery shopping for the first time since the pandemic, it seems inevitable that many will adopt a new way of shopping permanently. For others, the reliance on convenient home deliveries is likely to have embedded, supported by more working from home.
“While a new level of online demand will help improve operational efficiencies across the channel, there are still doubts on the overall impact on profitability. As online accounts for a larger proportion of overall sales, variable costs associated with servicing the online business will rise, as fixed costs across their expansive store estate remain. This pincer movement of rising costs will put significant pressure on profits, with further cost-cutting likely to be the immediate lever to pull.”
NAM Implications:
- Inevitable, and anticipated…
- …and Tesco doing as good as you get.
- But the key benefit of these stats has to be as a basis for comparison with your sales…
- …in a granular form as possibly…
- …on and offline.
