Tesco braces its customers for price hike

TESCO is set to warn at its results announcement this week that food costs will rise due to the HGV driver crisis, inflation and higher commodity prices.

The supermarket giant is expected to say that both its first half profits and revenues have continued to rise, despite tough comparisons with the first lockdown last year and the lifting of restrictions this year.

Its revenues are forecast to be £1.5billion higher at £30.3billion, while net profits are tipped to be around £800million, compared to £465million last year. Tesco is also expected to unveil its first regular dividend, worth 3.2p. The last time it paid an ordinary dividend was prior to the pandemic.

However the market will be paying closer attention to what Tesco chief executive Ken Murphy has to say about the cost pressures facing the sector.

He is expected to follow in the footsteps of his Morrisons and Aldi counterparts and warn of higher prices.

AJ Bell investment director Russ Mould said: “If Tesco’s numbers are positive there will be a share price response, but the main thing the market will be keeping an eye on is what Murphy says about margins and input costs.”

Hargreaves Lansdown equity analyst Sophie Lund-yates said the market will be paying close attention to its like-for-like sales growth: “Sales were up 1.1 per cent on a like-for-like basis in the first quarter because of Tesco lapping the exceptional demand seen in the early days of lockdowns. We wonder if Tesco has managed to keep sales pushing forward in the second quarter, especially online sales.”

Additionally, Tesco may update the market on its plans to open its first checkout-less store this year. It will be similar to ones pioneered by Amazon and is based in central London.

Alliancebernstein senior analyst William Woods predicted cashierless technology could give Tesco an edge this decade, like its loyalty scheme Clubcard in the 1990s.

He said: “Checkout-less technology is likely to be one of the defining features of the next decade of food retail, attacking the huge cost of checkouts. The technology is still in its early days but we estimate a strong payback of four to five years.”

On Friday, the fate of rival WM Morrison was decided when its two suitors, private equity giants Fortress and Clayton, Dubilier & Rice, faced each other at an auction run by the Takeover Panel, the City’s deals referee.

The auction saw Morrisons surrender its independence after 121 years.