Britain’s lockdown drives Tesco’s sales and costs higher

Laveta Brigham

Shoppers queue to pay for their shopping in the Tesco Extra superstore on April 20, 2009 in New Malden, Surrey, England. Oli Scarff | Getty Images News | Getty Images Tesco, Britain’s biggest retailer, saw underlying U.K. sales rise 8.7% in its first quarter to May 30, boosted by the […]

Shoppers queue to pay for their shopping in the Tesco Extra superstore on April 20, 2009 in New Malden, Surrey, England.

Oli Scarff | Getty Images News | Getty Images

Tesco, Britain’s biggest retailer, saw underlying U.K. sales rise 8.7% in its first quarter to May 30, boosted by the coronavirus lockdown, but reiterated a flat profit outlook due to the costs of the crisis.

The supermarket group cautioned costs would be at the upper end of previous guidance and also said it had increased Tesco Bank’s provision for potential bad debts, forecasting the division would make a loss of up to £200 million ($248 million) in 2020-21.

Shares in Tesco, which has a 27% share of Britain’s grocery market, were up 1% at 0800 GMT, paring 2020 losses to 11%.

Prime Minister Boris Johnson announced England’s lockdown on March 23, with grocery stores among the only shops allowed to remain open. That has since been eased, with all non-essential stores able to open from last week.

All of Britain’s big four grocers — Tesco, Sainsbury’s, Morrisons and Asda — have seen sales boosted by the lockdown.

Tesco and Sainsbury’s have particularly benefited, with their networks of superstores complemented by strong online and local convenience store businesses playing well with the changing shopping habits of the crisis.

Tesco’s online sales in the U.K. and Ireland soared 48.5% in the quarter, while convenience store sales rose 9.5%.

“The results … clearly show the impact of the pandemic and the unique competitive advantage of the Tesco business model,” CEO Dave Lewis told reporters, noting Tesco saw net customer switching gains from discounter Aldi for the first time in a decade.

Growth in the U.K. was driven by a 12% increase in food sales, offset by discretionary categories such as clothing, which fell by around 20%.

But the boost in Tesco’s sales has been counteracted by the increased costs of operating during the pandemic, and based on an assumption of a continued easing of lockdown restrictions it said 2020-21 retail operating profit was likely to be similar to the 2019-20 outcome.

Tesco’s latest estimate of incremental costs from the crisis was £840 million, partly offset by business rates relief and increased sales.

Lewis is due to leave Tesco on Oct. 1 after a six-year tenure, handing over to Ken Murphy.

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