COVID-19 wipes out 20 pct of Tesco’s pretax profit but sales surge

Tesco, Britain’s biggest retailer, reported a 20 percent 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 lockdown.

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

Profit before tax came in at 825 million pounds, down 19.7 percent 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.”

The retailer reported a 6.3 percent rise in group like-for-like sales, including a 7.7 percent lift in its core British market. UK online surged 77 percent to 6.3 billion pounds 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.

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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.