Tesco’s profit halves as inflation bites

Britain’s biggest retailer, supermarket group Tesco, reported Thursday a halving of annual net profit as soaring inflation hiked costs and reduced the amount it sold.

Profit after tax dropped to £745 million in the 12 months to the end of February, Tesco said in a statement.

Chief executive Ken Murphy said the group experienced “unprecedented levels of inflation in the prices” it paid suppliers.

The supermarket added that sales volumes dropped year-on-year.

This was offset by Tesco hiking prices of products, helping revenue jump seven per cent to £65.8 billion.

Tesco said it expected inflation to continue through the next six months at least, but the level would moderate, led by falling prices in categories including oils and grains.

“We’re expecting inflation to continue certainly through the first half of the year,” Murphy told reporters. “But we are expecting it to moderate as we lap last year’s inflation.”

The grocer said it recognised the pressures its suppliers were facing from rising costs but it was not afraid to have “direct conversations” about delivering value for its customers.

“We’ve worked closely with our suppliers to provide them with the support they need at this critical time,” Murphy said.

“However, at a time when we have been focused on mitigating the impact of inflation, we also haven’t been afraid to have direct conversations when necessary in the interest of our customers.”

Tesco forecast flat profit in its new financial year after the 6.3 per cent fall in 2022/23.

The group, which has a 27 per cent share of Britain’s grocery market, said it made retail adjusted operating profit of £2.49 billion in the year to Feb. 25 – in line with guidance of £2.4-£2.5 billion but down from the £2.65 billion made in 2021/22.

Group sales rose 5.3 per cent to £57.6 billion.

“It’s been an incredibly tough year for many of our customers, and we have been determined to do everything we can to help,” Murphy said.

The group forecast retail free cash flow within its target range of £1.4-£1.8 billion and adjusted operating profit of £130-£160 million for its bank division.

British consumers have been pressured for more than a year by high inflation which has outstripped pay growth for almost all workers. Last month government forecasters estimated households were in the midst of the biggest two-year squeeze in living standards since comparable records started in the 1950s.

UK consumer price inflation ran at 10.4 per cent in February, the most recent official data shows. In March, grocery inflation rose to a record 17.5 per cent, according to industry data.

Rising utility and mobile phone bills along with higher taxes and interest rates are also hitting household budgets.

Tesco is, however, benefiting from people looking to save money by cooking and entertaining at home more rather than dining out.

It said fourth quarter UK like-for-like sales rose 7.6 per cent, having risen 4.3 per cent in the third quarter.

Monthly industry data has shown Tesco performing solidly versus its traditional rivals, though it is still losing market share to German-owned discounters Aldi and Lidl, who are continuing to open lots of new stores.

Tesco is paying a full year dividend 10.9 pence a share, in line with the previous year, and said it would buy back another 750 million pounds of shares over the next year.