Tesco Profits Double As It Focuses On Keeping Prices ‘In Check’ – Cryptovibes.com – Daily Cryptocurrency and FX News
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Despite pre-tax profits jumping from £1.1bn to above £2.2bn, ‘significant uncertainties’ weigh on business, according to Tesco.
As Tesco faces a battle to “keep the cost of the weekly shop in check” amid squeezing household budgets and soaring inflation driving up costs, it doubled pre-tax profits to more than £2bn last year, although it has cautioned on this year’s profits.
As pre-tax profits for the UK’s biggest supermarket jumped from £1.1bn to £2.2bn in the year to the end of 26 February, total revenues — which proved to be a pandemic winner by boosting online sales and taking a share from rivals — rose by 6% to £61.3bn.
But the company warned of “significant uncertainties” upsetting the business, including investment to keep prices low versus budget operators, such as Lidl and Aldi, whether customer shopping behavior would change as the nation moves out of the coronavirus pandemic, and cost inflation.
In March, inflation hit a three-decade high of 7%, the Office for National Statistics revealed on April 13 and could reach a four-decade high of 10% by the end of the year. Ken Murphy, the chief executive of Tesco, said:
“Over the last year, we delivered a strong performance across the group, growing share in every part of our business.”
“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.”
Tesco widened its forecast of profits for this year to between £2.4bn and £2.6bn – less than the £2.84bn predicted by analysts, as a result of uncertainty in the market.
Tesco’s share price fell as much as 5% in early trading making it the second-largest loser in the FTSE 100. Tesco Bank returned to profit, making £176m, and at the group’s core grocery business adjusted operating profits rose 35% year on year to £2.6bn.
Notably, Tesco’s profits more than tripled year on year from £636m to £2.03bn, stripping out exceptional charges such as litigation and restructuring costs on an adjusted basis.
While shopping habits are changing since the minimizing of pandemic restrictions, customers are now looking sharply at their budgets – households will this month be struck by the first bills incorporating several price rises including those from TV companies, phones, and energy – Murphy said its surveys show.
Times have come when Belt-tightening among households is needed to try to save money. Some of the strategies include eating in, working from home, and cutting holiday budgets, which could temper trends such as increased travel, eating out more, and a return to the office.
Murphy stated:
“Customers are looking at budgets and are already making trade-offs. We are trying to discern what behaviors are being driven by the lifting of restrictions, and what behaviors are starting to emerge as cost and energy price increases start to bite.”
By offering a combination of Everyday Value pricing, Aldi price matching, and Clubcard offers, Tesco was maintaining its competitive edge against discounters, he said.
Tesco had been “almost religious” in maintaining the price of the 600 most popular shopping items highly competitive, according to Murphy.
“It has been many years since we have seen living costs rise at the rate they are today. We have been really working hard to hold back the effect of that inflation. Increase by a little less, and a little later than the market.”
He added that his sourcing teams were:
“Not hearing or seeing any sign of that” despite widespread reports of potential fresh produce shortages. However, specific products experienced some problems – such as “patchy” accessibility of sunflower oil, of which Ukraine and Russia are big producers – and that Tesco was “already looking at alternative vegetable oil sources”.
Earlier in the pandemic, the online shopping boom peaked and it accounted for 15.5% of total sales at Tesco – online revenues dropped 6.5% to £5.9bn last year at a 14% share of all sales — although before the coronavirus pandemic, that online shopping remained well up on the 9% share it represented.
Even though the supermarket said it continued to run up costs because of staff absences, it also profited from a significant reduction in costs related to Covid-19 in the UK, falling from £892m in 2021 to £220m last year.
Tesco launched a £750m share buyback as well as increased its dividend by 19.1% to 10.9p prompted by the strong results.
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