Tesco profits soar as online orders increase due to COVID-19 pandemic

Image ©Licensed to i-Images Picture Agency. 16/08/2017. London, United Kingdom. Tesco. Tesco Milton Keynes, Northampton, Tesco Distribution Centre Daventry. Picture by Andrew Parsons / i-Images

British supermarket giant Tesco has today announced that pre-tax profits at the company for the 26 weeks to 29 August was £551m, up 28.7% when compared to the same time period last year.

Tesco said sales in the UK had risen by 8.6% to £24.3bn, with overall revenues increasing to £28.7bn.

This is largely down to a large increase in online retail sales since the COVID-19 pandemic struck the UK. Tesco more than doubled online delivery capacity to 1.5 million slots a week since March. Online food sales have risen by 9.2% when compared to the 2019 figures.

However, operating profit fell 15.6% to £1.037bn, mostly due to Tesco Bank, which made a loss of £155m – and COVID-19 related costs of more than £530m.

Today’s results are the first under its new CEO, Ken Murphy, who replaced Dave Lewis last week.

Tesco said it was increasing its interim dividend by 21% to 3.2p a share.

Ken Murphy, Tesco’s Chief Executive Officer said: “The first half of this year has tested our business in ways we had never imagined, and our colleagues have risen brilliantly to every challenge, acting in the best interests of our customers and local communities throughout.  I would like to thank all our colleagues for their amazing contribution and I am delighted and proud to be part of such an incredible team.

“We are absolutely committed to continuing to invest in value for customers and safety for all in these uncertain times. Tesco is a great business with many strategic advantages.  I’m excited by the range of opportunities we have to use those advantages to create further value for our customers and, in doing so, create value for all of our other stakeholders.”

No supermarket sweep for Tesco as it posts an overall pandemic profit fall

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

Even though Tesco collected the clicks on a huge scale during the pandemic as it ramped up its delivery service, the six months to the end of August were far from a supermarket sweep for the grocer. Covid costs have eaten into rising grocery sales and losses at Tesco bank have led to a 15.6% fall in core profit.  The group made an operating profit before one-off items of £1.037 billion, down from £1.229 billion in the same period last year.

Additional payroll costs for extra staff, the challenge of dealing with panic buying and the social distancing measures needed in stores and warehouses, has held back performance, even though it still maintains the position of the biggest UK retailer by sales. Group sales rose 6.6% to £26.7 billion over the last six months but Tesco had to spend £533m during the period adapting to COVID-19.

However, Tesco says despite significant uncertainties ahead, it now expects retail operating profits for the current year to be at least the same level as last year. But Tesco will have a fight on its hands, given the intense competition in the grocery sector. Tesco is still leading the supermarket pack, a position it cemented partly by stealing customers from Aldi, for the first time in a decade, as customers chose to do bigger shops less frequently during lockdown and opted for online delivery slots. Now Aldi is making a bigger move into digital grocery sales those new customers could switch back over coming months.

Although Tesco can still benefit from consumers tightening their belts, by pushing its value range offers in store, the struggling economy will continue to be bad news for Tesco’s bank, which has posted a £155m loss. The fear is that more people will struggle to pay back debts due to reduced income over the coming months, and Tesco isn’t expecting the situation to improve any time soon, with an operating loss of between £175m and £200m expected this year. However, it’s stressing that although provisions for bad debt might have to increase, the bank’s capital ratios and liquidity remain strong.