Britain's Tesco warns coronavirus costs could top $1 billion

Britain's biggest retailer Tesco estimated a hit of up to 925 million pounds ($1.1 billion) from the costs of dealing with the coronavirus pandemic and warned it couldn't give profit guidance for the current financial year. The supermarket group said on Wednesday if trading returned to normal by August, it was likely the extra expenses for its retail operations - mainly staff and logistics costs - would be offset by higher sales and relief from a business tax introduced by the government to help companies through the crisis.

But it warned Tesco Bank would likely dip to a loss in the 2020-21 year, hurt by a reduction in income from all its activities, including credit cards, loans, and travel money. Chief executive Dave Lewis said Tesco was justified in accepting 585 million pounds of business rates relief from UK taxpayers, while still paying investors a final dividend totaling 635 million pounds.

"What the government has done is recognize there were going to be incredible additional costs to keep feeding the nation," he told reporters. He said the dividend was to reward shareholders, both large and small, who rely on the income, for Tesco's performance in the year ended Feb. 29, which pre-dated the crisis.

"Whilst we appreciate that this may not be the case for a number of sectors or industries where there may not be any choice but to suspend dividends and preserve cash we are in a strong position to payout ... we believe that it is right to do so," he said.

DEMAND SURGE

Shares in Tesco were down 4% at 0850 GMT, extending 2020 losses to 16%, but still outperforming the UK's benchmark FTSE-100 index. With some other retail businesses, such as department store group Debenhams, in dire straits, Bernstein analyst Bruno Monteyne was reassured there were "no doomsday concerns playing out" at Tesco, with the coronavirus crisis having a "neutral impact on retail, but a one-year hit in banking profits."

Britain's supermarkets saw a surge in demand as shoppers stocked up on essential goods such as toilet roll and pasta ahead of a national lockdown to contain the spread of the virus. Industry data last week showed UK grocery sales leaped more than a fifth to a record 10.8 billion pounds in the four weeks to March 22.

However, the crisis has come with higher costs, such as the implementation of social distancing measures that restrict the number of shoppers in-store at any one time, expanding online delivery operations, staff bonuses and hiring more employees. Tesco's wholesale business Booker has also been hit by the closure of hotels, pubs, restaurants, and cafes, as has demand for clothes and general merchandise.

Lewis said the panic buying that emptied store shelves and strained supply chains at the start of the crisis had subsided, and that he did not expect Easter trading to see the same peak as previous years. Tesco estimated extra costs related to the health crisis could be between 650 million and 925 million pounds.

It said that in the last two weeks alone it had recruited more than 45,000 workers in Britain to help cover staff sickness and cope with an additional demand. Lewis told reporters the company currently had around 55,000 employees absent from work. According to its website, Tesco employs around 320,000 people in Britain.

The company, which has about 3,800 stores in the UK and Ireland and a UK grocery market share of 27%, said operating profit before one-off items rose 14% to 2.96 billion pounds in its 2019-20 financial year, broadly in line with analysts' expectations. Group sales fell 0.7% to 56.5 billion pounds. Despite the pandemic, Lewis said Tesco still expected to complete the 8.2 billion pounds sale of its business in Thailand and Malaysia to Charoen Pokphand Group in the second half of the year.

And he still plans to leave Tesco on Oct. 1 after six years in the job, handing over to Ken Murphy, a former executive of Walgreens Boots Alliance. ($1 = 0.8123 pounds)

 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)