Tesco PLC's (LON;TSCO) annual profits tumbled 20% as the extra costs outweighed a surge in sales sparked by the Coronavirus (COVID-19) lockdown.
Revenues in the year to March jumped 7% to £53.4bn not including fuel, as people ate at home more. However, this was offset by £892mln in COVID-19-related costs as staff numbers increased and as the grocer returned £585mln in business rates relief.
Profits for the year came in at £825mln, against £1.03bn twelve months earlier and Ken Murphy, chief executive, said the group had shown incredible strength and agility during the pandemic.
Murphy added sales had been exceptionally strong and the FTSE100 group had taken market share from all of its major rivals.
UK and the Republic of Ireland sales jumped 8.6%, with online sales up 77% to £6.3bn as capacity more than doubled over the year to 1.5mln slots a week.
Going forward, Tesco said it expects sales to be much steadier this year and some of the additional sales volumes gained this year in the core UK market will fall away as COVID-19 restrictions ease.
“But we expect a strong recovery in profitability and retail free cash flow as the majority of the additional costs incurred as a result of the pandemic in the 2020/21 financial year will not be repeated.
“Whilst the greater than usual level of uncertainty around sales volumes, mix and channel shift makes it difficult to be precise, our best estimate at this stage is for retail operating profit to recover to a similar level as in the 2019/20 financial year (on a continuing operations basis) - the year prior to COVID-19 having any impact on performance.”
Tesco Bank should also return to profit after posting a loss of £175mln in the twelve months just ended, said the statement.
Shareholders get a maintained dividend of 9.15p per share in addition to £5bn special paid earlier for the sale of the Asia business.