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Tesco spent more than £ 500 million dealing with the coronavirus pandemic over the past six months and warned of mounting losses at its bank as the deteriorating economy hit consumer finances.
Britain’s largest supermarket chain said UK food sales rose more than 9% in the six months to August 29. However, the bill for additional security measures in its stores reached 533 million pounds.
The retailer said the pandemic had also had a “material impact” on its bank’s performance, as it issued fewer loans and credit cards and set aside more money for bad debt. This resulted in an operating loss of £ 155 million compared to a profit of £ 87 million last year.
“A marked deterioration in macroeconomic indicators, particularly UK unemployment and GDP, prompted an increase in the provision for potential bad debts,” Tesco explained.
The update is the first outing for Ken Murphy, who last week succeeded Dave Lewis as CEO of the UK’s largest retailer. The Irishman has spent most of his career in senior positions at Boots owner Walgreens Boots Alliance.
At the first indication of the direction the group will take, Murphy said that Tesco was a big business with many strategic advantages. “I am excited about the variety of opportunities we have to use those advantages to create more value for our customers and, in doing so, create value for all of our other shareholders,” he said.
Despite difficult business conditions, the company reported a 29% increase in pre-tax profit to £ 551 million on sales of £ 26.7 billion.
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The pandemic has caused big changes in buying behavior. Tesco’s online business had grown 90% in the last three months of the period, while sales at its convenience stores increased 7.6% as more customers recharged at its local main street. In large stores, Tesco said sales grew 1.4% as customers made fewer trips but bought more with each visit, and the average basket size increased by 56%.
Ross Hindle, an analyst at research firm Third Bridge, said the past six months have been characterized by larger weekly stores, as well as a significant move toward online retail.
“However, the infrastructure of retailers was not prepared for an increase in demand, so higher costs were incurred and the switch to the Internet has also created problems,” he said. This means that top-line earnings are unlikely to directly translate into earnings growth. “
