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Author: Alan LittleDate: 2021-04-15

Tesco (TSCO) -2% after annual profits tumble 20% to £825m

Tesco (TSCO) shares fell 2% on Wednesday after the UK’s largest supermarket said that annual profits tumbled 20% to £825m due to significant COVID-19-related costs. 


During the 12 months to March 2021, Tesco said that revenues did rise 7% to £53.4bn, as people purchased more food and goods for consumption at home during the pandemic. 


However, £892m in costs related to the crisis, including the need to support a larger workforce, weighed on bottom line as £585m was also returned for business rates relief. 


Tesco brought in around 50,000 temporary employees and 40% have since continued to work permanently. 


Tesco chief executive Ken Murphy hailed the company’s agility and strength during a challenging year, but it was not enough to prevent a 20% dip in profits from £1.03bn a year ago. 


Tesco did increase its market share though and overall sales climbed 8.8% in the UK and Ireland, while sales on digital platforms soared 77% to £6.3bn. 


The FTSE 100 company had to increase its delivery capacity to support the surge in online orders as the number of slots jumped +100% to 1.5m per week. 


While the uncertainty of COVID-19 still lingers, Tesco sees a much steadier 2021 and a robust profit rebound as a result. 


Murphy noted that many additional costs incurred during the last year “will not be repeated”. 


This means that Tesco’s “best estimate” is for “retail operating profit to recover to a similar level as in the 2019/20 financial year”. 


Third Bridge analyst Ross Hindle said that the “biggest risk” for Tesco is the competitive threat posed by cheaper rivals such as Aldi. 


Tesco shares closed 2.02% lower at 227.40p in London on Wednesday. 

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