26th Jun 2020 08:47
(Alliance News) - Tesco PLC on Friday said higher volumes and business rates relief in its first quarter only partly offset the costs from kitting out stores to comply with Covid-19 measures and from increasing online capacity.
Chief Executive Dave Lewis said: "In just five weeks, we doubled our online capacity to help support our most vulnerable customers and transformed our stores with extensive social distancing measures so that everyone who was able to shop in store could do so safely.
"The costs of doing this have been significant and only partly offset by business rates relief and increased volume. We see the balance as an investment in supporting our customers at a time when they need it most."
Total sales in the 13 weeks ended May 30 increased by 8.0% to GBP13.38 billion, a 7.9% like-for-like increase.
This was most pronounced in the UK and Republic of Ireland, where sales were up 9.2% at GBP12.21 billion and up 8.2% like-for-like.
Online capacity increased to 1.3 million slots per week from 600,000, and the current sales run rate online indicates around GBP2 billion of sales growth in its current financial year ending ending February 2021.
In central Europe, excluding Poland, sales rose 3.3% to GBP968 million and were up 3.9% on a like-for-like basis.
However, Tesco Bank struggled in the period, with sales down 27% at GBP198 million as activity reduced and its travel money business had to close temporarily, while ATM income was sharply reduced.
Tesco made a provision for potential bad debts in light of "updated macro-economic assumptions" for Tesco Bank and is now forecasting a GBP175 million to GBP200 million operating loss for Tesco Bank in its 2021 financial year. The bank's capital ratios and liquidity are still strong, it said.
Furthermore, due to the pandemic and its associated control measures, Tesco had to make "significant changes" to its operations resulting in "a substantial increase in costs" mainly in the UK. Most of these costs are from payroll, including provision of 12 weeks' paid leave to 26,000 vulnerable employees, as well as recruitment of 47,000 temporary workers to cover absence and meet higher demand.
Costs also were incurred in distribution, where previously mothballed distribution centres had to be reopened, and in property, where Tesco incurred costs from adapting stores and experienced temporarily lost tenant income.
By itself, providing safety-related consumable and personal protection equipment across all 3,628 of its stores has resulted in an approximately GBP65 million charge. Tesco's largest estimate for incremental costs in the UK over financial 2021 is around GBP840 million.
Such costs are to be partially mitigated by UK business rates relief of GBP532 million and a contribution from additional food sales.
Booker's sales increased 6.1% including an approximately 5% contribution from Best Food Logistics - acquired in early March. Booker's retail business sales were up 24%, though this was partially offset by a drop in customer footfall for its catering business, where sales were down 32%.
In Central Europe, outside Poland, customer shopping behaviour changed in a similar way to the UK with increased demand for online grocery and an altered mix of sales favouring more essential food items. Central Europe sales also will be hurt by the temporary closure of shopping malls between March and May.
Shares in Tesco were up 0.1% at 226.68 pence in London in morning trading.
By Anna Farley; [email protected]
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