Tesco sticks to profit forecasts despite jump in Covid-19 costs

Tesco has maintained its annual profit forecasts despite a jump in Covid-19 costs and slower Christmas sales than some analysts expected.

In a trading update, the UK’s largest supermarket group said extra costs tied to the pandemic will now hit £810m for its financial year, up almost £100m from a previous estimate.

The rising costs came as the chain reported same-store sales in the UK, where it is the market leader, rose 8.1 per cent in the six weeks to January 9. That compares with the 10 per cent growth forecast by analysts at HSBC.

Rivals Wm Morrison and J Sainsbury reported sales growth of 7.3 per cent and 9.3 per cent over broadly equivalent periods.

For the third quarter as a whole, UK sales grew 6.7 per cent, with strong growth online, as Tesco expanded the number of delivery and collection slots available.

Like peers, Tesco said trading was helped by strong demand for premium ranges, with sales of its Finest lines up 14 per cent.

“We’re in great shape to keep delivering in 2021 and beyond,” said chief executive Ken Murphy, who added that strong supplier relationships had helped keep products available through the initial Brexit transition period.

Sales at Booker, the group’s wholesale business, grew 12.4 per cent, boosted by the acquisition of Best Food Logistics and strong sales to convenience stores. These offset a 30 per cent fall in sales to the hospitality industry.

Tesco said that same-store sales in central Europe were up 0.9 per cent over the quarter, but down 4.2 per cent over the Christmas period due to Covid-19 trading restrictions, which included limits on opening hours.

Income at Tesco Bank fell 27 per cent, reflecting the impact of the pandemic on borrowing, travel money and cash machine use. Tesco expects a loss of up to £200m for the full year at the banking unit.

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