Tesco reports surge in profit but Irish like-for-like sales decline by 3%

Tesco, Britain’s biggest retailer, reported a 35.8 per cent rise in annual profit but cautioned profit was likely to fall in the current year given the tough external environment.

In the Republic, the retailer reported a 2.9 per cent decline in like-for-like sales to just under £2.5 billion (€3 billion). However, it noted this was up 10.6 per cent compared with the same time two years ago.

“The Covid-19 impact was particularly strong in ROI as the restrictions on hospitality were in place for a longer period than in the UK,” it said.

It said its like-for-like sales in the Republic grew by 0.3 per cent over Christmas and it gained market share in the fourth quarter.

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The company’s Irish online business grew by 3.1 per cent on a one-year basis and now represents 8 per cent of its sales, it said.

Tesco, which has an over 27 per cent share of Britain’s grocery market, said on Wednesday it made retail adjusted operating profit of £2.65 billion in the year to February 26th, in line with guidance of slightly above £2.6 billion and up from £1.96 billion in 2020-2021.

It saw group sales excluding fuel rise by 2.5 per cent to £54.8 billion, with UK like-for-like growth of 0.4 per cent – up 8.2 per cent on a pre-pandemic two-year comparison.

Shares in the company were down 5 per cent in early trading in London, the biggest decline of a blue-chip stock in Europe. That dragged down other grocery stocks, including Sainsbury’s, Marks & Spencer and Ocado, as well as retailers such as JD Sports.

‘Tough backdrop’

Tesco chief executive Ken Murphy said: “Clearly, the external environment has become more challenging in recent months. Against a tough backdrop for our customers and with household budgets under pressure, we are laser-focused on keeping the cost of the weekly shop in check – working in close partnership with our suppliers, as well as doing everything we can to reduce our own costs.”

A cost-of-living crisis and supply-chain disruptions due to Russia’s invasion of Ukraine are weighing on Britain’s grocers.

Last week, number four supermarket group Morrisons warned its annual profit could be hit by the conflict and rising inflation. Number seven player the Co-operative Group pointed to “stark” economic headwinds.

The war in Ukraine has hurt supplies of sunflower oil and has driven up animal feed and wheat prices, which has had a knock-on effect on meat, dairy and bakery.

Soaring energy prices, as well as increased labour costs, have added to the cost of doing business.

Market data suggests shoppers have started to shift their buying habits to save money, opting for more own-label foods.

Analysts say Tesco is benefiting from its strategy of matching prices at discounter Aldi on 650 key lines, the popularity of its Clubcard Prices loyalty scheme and the scale of its store network and online operation.

Tesco raised its full-year dividend 19.1 per cent to 10.9 pence a share and committed to return a further £750 million to shareholders by April 2023 through a share buyback programme.

“Tesco has proven its ability to adeptly navigate tricky periods and few would bet against it doing so again,” said Zoe Gillespie, investment manager at Brewin Dolphin. – Reuters