Tesco profits fall by a fifth

‘Exceptional’ £1bn a week sales offset by virus bills

TESCO profits have fallen by a fifth despite ‘exceptional’ sales of more than £1bn per week in the pandemic.

The closure of pubs and restaurants boosted Britain’s largest supermarket but it was unable to capitalise because of £892m of costs related to the virus.

Revenues rose 7pc from £49.9bn to £53.4bn in the year to February 27, helped by a 77pc increase in online sales to £6.3bn.

But the supermarket giant’s profits fell 19.7pc to £825m as it was forced to spend enormous sums to keep staff safe and expand capacity online.

Thousands of vulnerable staff were paid to self-isolate at home, costing the supermarket £79m. Tesco spent £58m on PPE, screens and signs for stores, and £173m on ‘thank-you’ bonuses to its 450,000 staff.

It also hired 49,600 temporary and permanent staff to cover for workers who were off sick or self-isolating, at a cost of £290m.

The results were also hit by Tesco’s widely-lauded decision to pay back £585m of business rates relief.

The dividend was held at 9.15p per share, equivalent to £707m. Shares fell 2pc, or 4.7p, to 227.4p yesterday.

Chief executive Ken Murphy ( pictured), who took over from Dave Lewis in October, said: ‘Everything about this last year has been exceptional. While challenges have been significant our business has demonstrated incredible strength and agility.

‘We expect a strong recovery in profitability as the majority of our additional Covid costs won’t be repeated.’

The company said operating profits will return to pre-pandemic levels this year, despite sales returning to normal when hospitality reopens.

This is because virus-related costs will fall to around £223m, and a ‘ strong recovery’ is expected for Tesco’s wholesale business, Booker, when hospitality reopens. Tesco Bank will also return to profit after making a £175m loss last year, it hopes.

Independent retail analyst Richard Hyman said yesterday: ‘I think Tesco is being very sensible with the guidance, but I’m pretty positive. The numbers were good and there’s a safe pair of hands at the helm.’

Nicholas Hyett, an analyst at financial services firm Hargreaves Lansdown, said: ‘The stage is set for a strong earnings recovery once the pandemic passes.’

Investment bank Jefferies said that the profit guidance was ‘conservative’, as it gave a ‘buy’ recommendation with a 310p target price.

In recent weeks, the company’s stock has been trading at its lowest levels since November 2017.

Investors are concerned that food delivery is not as profitable as sales in- store, meaning the shift to online could hit its bottom line in the long-term.

Tesco said its online division is profitable, and that it is cutting costs with new warehouses, which will make it cheaper to pick online orders.

Its first unit, in West Bromwich, is already servicing 500 orders per day, about the same as a large store, and it plans to open a further five this year.

Murphy also highlighted the success of the Clubcard Plus, saying that 80pc of shoppers in its larger stores are using it and discounts have been extended to 3,000 products.

The scheme is encouraging greater loyalty, he claimed, and the data that Tesco collects will help the retailer target promotions at its shoppers.