Profits down to £753m as retailer faced operating cost inflation and write-down on value of some properties.
Profits at Tesco halved last year to £753m in what the grocer called an “incredibly tough year for customers” as it battled “significant operating cost inflation” and wrote down the value of some properties.
The UK’s biggest retailer said sales rose 7.2% to £65.7bn in the year to 25 February, including a 3.3% increase at its UK supermarkets, but it had sold fewer items as shoppers chose carefully, to manage budgets under pressure from price rises.
Sales of food in the UK rose 4.6% in the year, led by the group’s own-label ranges, with sales of its premium Finest range up nearly 7% and its cheapest “Exclusively at Tesco” range up 6%.
However, the supermarket said the volume of items sold had fallen, partly as its customers wasted less and used up leftovers, and as they adjusted behaviour after Covid restrictions eased, buying less to eat at home because they were visiting restaurants and cafes more often.
Shoppers are still eating out less than before the pandemic and keeping costs down by switching from more expensive red meat to white and spending more holidays at home, Tesco’s chief executive, Ken Murphy, said.
Murphy suggested staycations and dining at home were likely to continue over the summer as the outlook remained tough for consumers and businesses.
“Some commodity prices are starting to come down but lots are still inflationary,” he said. “The industry and supply chain have some locked in inflationary pressures through higher energy costs and wage inflation.”
He said the price of milk, cooking oil and bakery products such as bread were starting to fall but warned that the costs of other commodities, such as rice and protein, continued to increase, underpinning overall inflation.
Tesco, which owns the Booker grocery wholesaler and runs stores in eastern Europe and Ireland as well as the UK, expects underlying operating profit to remain flat in the year ahead as it pledged to “prioritise investment in our customer offer while doing everything we can to offset the impact of ongoing elevated cost inflation”.
Murphy said Tesco had invested in products, prices and staffing “despite unprecedented levels of inflation in the prices we have paid our suppliers for their products, and the cost of running our own operations”.
However, the retailer came under fire from Which?, the consumer group, which said Tesco should be working harder to keep prices down.
Sue Davies, the head of food policy at Which?, said: “These results show Tesco is doing very well during the cost of living crisis while millions of its customers struggle to put food on the table due to soaring grocery price inflation.
“It’s clear that Tesco and all the major supermarkets could be working harder to make food more affordable for customers who need help.”
Announcing a £516m end of year dividend for shareholders, compared with a £588m pay out the year before, Murphy said: “I feel very comfortable with what we are doing for shareholders as it is balanced relative to other stakeholders we have responsibility to look after.”
He said the group had done “a brilliant job” on being price competitive – matching the discounter Aldi on 2,000 core product items – and had increased pay for its hourly-paid shopfloor staff by 15% in 12 months.
Murphy said food prices had risen far below the headline rate of 18% released by the Office for National Statistics as Tesco was “robustly challenging every cost increase” with suppliers and had not passed on all its additional costs to shoppers.
Tesco and the other big supermarket chains are taking a hit to profits as they are forced to keep prices down, despite hefty cost inflation, amid heavy competition from discount chains including Aldi, Lidl and B&M.
Profits were also hit by a £982m write-down on the value of properties and the £138m cost of restructuring, which included hundreds of job cuts when the retailer shut down its fresh food counters in stores.
Tesco’s sales of homewares and clothing fell in the UK after strong lockdown-linked sales in the first part of the previous year. Online sales were down 5.4% as shoppers returned to stores as the pandemic eased. However, Tesco said its Whoosh fast-track grocery service was proving popular and now operated from 1,000 stores, 200 more than previously planned.