COVID-19: Tesco counts cost of pandemic as profits slide 20% despite 'exceptional' sales
Shoppers piled up baskets in stores and online during lockdowns but coronavirus measures took nearly £900m out of the bottom line.
Wednesday 14 April 2021 09:46, UK
Tesco counted the cost of the COVID-19 pandemic as full-year profits fell by a fifth despite "exceptionally strong" sales growth.
Britain's biggest supermarket group reported pre-tax profits of £825m for the year to 27 February, 19.7% lower than a year earlier even as UK like-for-like sales grew by 7.7% to £39.4bn and online capacity doubled.
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That was after Tesco faced COVID-19 costs - including bonuses for staff - totalling £892m and also took a £535m hit on business rates relief handed back to the government.
The headline sales figures also stripped out fuel sales, which were down by £2.8bn, or 38%, as customers "travelled significantly less" due to pandemic restrictions.
Tesco said it had won customers "from all key competitors", with especially strong sales growth as customers stockpiled at the start of the first national lockdown last spring and again when tighter restrictions were imposed more recently, and a record Christmas.
Online demand surged by 77% to £6.3bn over the year, growing to represent nearly a fifth of sales over the winter period, and weekly delivery slots more than doubled to 1.5 million.
Despite the shift to online, Tesco's larger supermarkets also enjoyed sales growth of 1.5% - with shoppers making fewer visits but loading bigger baskets - and convenience stores were up by 3.9%, helped by the trend towards shopping closer to home.
The company said it expected some of the sales gains "to fall away as COVID-19 restrictions ease" in the coming year, though its forecast coronavirus costs of just over £200m will take a smaller chunk out of annual profits than the nearly £900m hit in 2020/21.
Tesco chief executive Ken Murphy said: "Tesco has shown incredible strength and agility throughout the pandemic. By putting our customers and colleagues first, we have built a stronger business.
"I'd like to say a huge thank you to the entire team for rising so selflessly to every challenge they've faced. Their efforts have been truly heroic."
Shares fell 3% in early trading.
Tesco and other supermarkets have enjoyed strong sales over the past year, when they have been allowed to remain open throughout lockdowns unlike "non-essential" retailers.
They have also benefited from restaurants and pubs being closed, which means consumers having to eat and drink more products purchased at stores instead.
But costs such as staff sick pay, in-store measures to guard against infections, and hiring extra workers have eaten into the store groups' bottom lines.
Tesco hired almost 50,000 temporary workers during the pandemic, about 20,000 of whom have joined the retailer permanently
The closure of hospitality businesses also had some negative impact for the company, which owns wholesaler Booker.
Booker's sales were up as demand from the smaller retailers that it supplies grew, though it saw sales to catering customers tumble by 41%.
Donald Brown, senior investment manager at Brewin Dolphin, said: "Tesco's results reflect the sometimes tricky position that supermarkets found themselves in over the last year.
"Although they have largely been able to trade through the last 12 months, this has come with significant extra costs."