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30% sales boost lifts Tesco results as it completes its turnaround plan

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Tesco saw sales leap by some 30% in the first few weeks of the COVID-19 pandemic, but wage bill and some supply costs could push its costs up by £925million this year.

Despite this, the retail says that with its turnaround plan now complete and results healthy, it is set to pay out a dividend of some £625m this year.

According to its trading statement for the year ended on 29 February 2020, shopping trip satisfaction improved across all formats, with brand net promoter score +7 points year-on-year.. Brand perception further improved across range, quality and value and the retailer’s ‘Aldi Price Match’ launched in March across hundreds of Tesco and branded products has seen Retail operating profit before exceptional items up 14.9% to £2,766m, on a margin of 4.4%.

“Over the last five years we have focused on serving customers better, re-engaging our colleagues, completely resetting our relationships with our suppliers and as a result we have been able to add value for our shareholders,” says Dave Lewis, Chief Executive. “These endeavours put us in a strong operational and financial position to deal with the challenges of COVID-19.”

COVID-19 impact

Coronavirus has had a short, sharp impact on Tesco so far, with sales up 30%, exhaustion of some supplies early on and the temporary rationing of some goods. However, the retailer says that shopping levels are now returning to near normal, but that COVID-19 is having a material impact on the operations of the business and that is is incurring significant additional costs, particularly in payroll as it recruits additional staff to meet demand and cover the work of those colleagues who are absent and being paid.

Lewis says: “Whilst the full financial impact of the crisis for 2020/21 is impossible to predict with a high degree of certainty, we have considered a range of scenarios to understand potential outcomes on our business and plan appropriately.  Dependent on the scenario, the estimated impact on our retail cost lines is between around £650m and £925m, including significant cost increases in payroll, distribution and store expenses.”

He adds: “At this stage it would not be prudent to provide financial guidance for 2020/21, however if customer behaviour were to return to normal by August it is likely that the additional cost headwinds incurred in our retail operations would be largely offset by the benefits of food volume increases, twelve months’ business rates relief in the UK and prudent operations management.” 

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