Tesco profits flat despite sales surge

The surge in online shopping and closure of restaurants and pubs has done little to boost Tesco, which said it expected operating profits to be broadly level with last year.

In a trading update ahead of its annual meeting later on Friday, the UK’s largest supermarket chain said increased costs and a reduction in catering industry business at its Booker wholesale operation would offset the effects of higher retail sales and a business rates holiday in the UK.

“At the peak [of the pandemic] we had 52,000 colleagues absent,” said Dave Lewis, chief executive, adding that even by the end of the quarter 32,000 were still off work, mostly because they were self-isolating or were classed as vulnerable.

Tesco also said it expected an operating loss of between £175m and £200m at its banking unit. Mr Lewis said this was based on revised assumptions about bad debts that, in turn, reflected expectations around metrics such as gross domestic product, wages and employment.

The company experienced a significant increase in online food shopping in the quarter ending May 30, with the number of available slots more than doubling to 1.3m a week. Sales were 48 per cent higher than in the same period a year ago and now account for 16 per cent of the total.

“The flexibility of our online model with very low capex is a distinct competitive advantage,” said Mr Lewis, who predicted that online sales could reach £5.5bn this year.

That helped overall sales in the continuing business, which excludes the Asian and Polish units, rise by 8.7 per cent on a same-store basis.

There was also a near-20 per cent increase in sales in Ireland while revenues doubled at discount format Jack’s, though it remains a small part of the overall operation. Mr Lewis said the increase at Jack’s was driven by larger basket sizes, the proximity of stores to their customer base and strong availability helped by a limited range.

Mr Lewis declined to be drawn about a potential shareholder rebellion at the annual meeting, beyond saying that the remuneration committee’s decisions had been driven by a desire to recognise a team effort to turn the company round over the past six years.

The group has been criticised for removing Ocado from a peer group used to compare shareholder returns, turning an underperformance at Tesco into an outperformance and triggering higher payments to executives.