Tesco’s profits halve to £1bn amid soaring costs - but sales rise

The UK’s biggest supermarket, which has 27% of the UK grocery market, said that while sales rose 7.2% to £65.7bn in the year to February 25, 2023, including a 3.3% increase at its UK supermarkets, it had sold fewer items as shoppers chose carefully, to manage budgets under pressure from price rises.

It said adjusted operating profit, excluding petrol, will be “broadly flat” in this financial year as it revealed profits fell 6.3% to £2.4bn in the year to February 25. This was in line with expectations. The sharp fall in pre-tax profits was largely attributed to a big write-off in the value of its property portfolio.

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Tesco noted that it had faced “unprecedented” increases as suppliers hiked their prices but had “fundamentally repositioned our value proposition” to help under-pressure customers. “It’s been an incredibly tough year for many of our customers, and we have been determined to do everything we can to help,” Mr Murphy noted.

“Our results reflect our continued investment in delivering great value and quality for our customers, while at the same time looking after our colleagues. This is despite unprecedented levels of inflation in the prices we have paid our suppliers for their products, and the cost of running our own operations.”

He pointed to the retailer’s “resilience and agility” developed over the last few years, stating: “[This] has created a sustainable competitive advantage that leaves us well-placed to deal with any challenges that may arise.

“It has enabled us to deliver another strong performance across the group, while continuing to make strategic progress.

“Perhaps, most importantly, over the last few years we have fundamentally repositioned our value proposition. We are the most competitive we have ever been, with our market-leading combination of Aldi Price Match, Clubcard Prices and Low Everyday Prices changing the way customers perceive value at Tesco.”

Led by the group’s own-label ranges, Tesco’s UK food sales increased 4.6%, with sales of the premium “Finest” range up nearly 7% and its budget “Exclusively at Tesco” range up 6%.

Tesco, which acquired the Paperchase stationery chain in January and will launch its first products in UK stores later this year, has also cut the price of its milk for the first time since May 2020, signalling that prices could be starting to ease.

Sales of homewares and clothing also dipped in the UK having flourished during lockdown in the first part of the previous year. Its online sales were also down 5.4% as shoppers returned to in-person shopping as pre-pandemic habits returned although Tesco said that its Whoosh fast-track grocery service was proving popular and now operated from 1,000 stores, 200 more than previously planned.

Convenience store sales and large supermarkets saw good sales growth with smaller outlets in central London experiencing the fastest growth – at 9.4% – reflecting workers’ return to offices.

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Tesco’s Booker wholesale group, it noted, “delivered its strongest year ever, helped by an outstanding catering performance as even more customers benefited from its unbeatable choice, price and service”.

Analysts were upbeat about Tesco’s performance, with Zoe Gillespie, investment manager at RBC Brewin Dolphin, noting: “Tesco is continuing to cement its position as the UK’s top supermarket. Profits may be down, but that was to be expected from the pressures of the cost-of-living crisis and post-pandemic normalisation in shopping habits.

“Sales growth, meanwhile, remains robust and Tesco is well placed to benefit from consumers looking to save on their weekly shop through its different initiatives – particularly its Clubcard scheme. While profits are expected to be flat for the year ahead, the continuation of its share buyback scheme and strong execution of its strategy mean Tesco remains in good shape.”