Ben Stevens/Parsons Media/Handout via REUTERS
- Tesco’s total revenues grew 8.6% in the six months to August, it said on Wednesday, thanks to a surge in online shopping during the pandemic.
- In the UK, online sales at the grocery giant nearly doubled in the quarter to August.
- Customers favored Tesco’s smaller, local stores over its larger supermarkets, it said. People are shopping less often — but buying more.
- Tesco’s operating profit fell 4.5% in the first half of the year, reflecting the £533 million ($686 million) it spent on its COVID-19 response, but it posted a 28.7% jump in pre-tax profit to £551 million ($709 million).
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British supermarket giant Tesco has reported rising sales and pre-tax profit, largely thanks to the boom in online grocery shopping during lockdown.
People are shopping less often — but buying more items per shop, it said in its half-year results on Wednesday.
In the UK, online orders grew 90% in the second quarter, and the proportion of sales made online nearly doubled to 16% in the first half of the year, it said.
The group reported a 8.6% year-on-year rise in global retail sales to £26.3 billion ($33.9 billion) in the six months to August, despite sales falling in Central Europe.
The supermarket giant posted a £551 million ($710 million) pre-tax profit, which is 28.7% more than last year, and a 34.6% jump in bottom-line profit.
Its operating profit fell by 4.5% to £1.04 billion ($1.34 billion), which reflected the £533 million ($687 million) it spent on its COVID-19 response, Tesco said.
The results came a week after Ken Murphy took over as CEO from Dave Lewis, who led the grocer for six years.
Analysts had feared that grocers would fail to fully capitalize on the increased food demand as restaurant closed, Josh Mahony, market strategist at brokerage IG Markets, told Business Insider. But Tesco's rising profits and revenues shows that the sector has finally "unleashed itself from the constant price wars," he added, and is now able to increase margins.
Tesco shares rose by 2.1% on the day, outperforming London's FTSE 100 index, which fell 0.1%.
However, Tesco shares have lost almost 15% so far this year, making them the second-worst performing British grocer, after Marks & Spencer.
Convenience stores outperform larger shops
Its convenience stores performed much better than larger stores during the pandemic, Tesco noted, as customers chose to shop closer to home. Customers are shopping less frequently but buying more, it added, with the average number of items bought per visit rising 56% in the first half of the year. UK clothing sales fell 17.2% as shoppers bought fewer non-essential items, but food sales rose by nearly 10%.
Tesco more than doubled its online delivery capacity to 1.5 million slots a week in the UK, and in August announced it was hiring 16,000 new employees to help meet this demand, including 3,000 delivery drivers.
The sales growth didn't hit all the regions Tesco operates in. Retail sales in the UK, where Tesco makes 80% of its revenues, were up 7.7% compared with last year, and up 16.3% in Ireland. But sales fell 4.3% in Central Europe to just under £2 billion ($2.58 billion) as stores in the Czech Republic, Hungary, and Slovakia struggled.
Tesco did not include its plummeting Polish sales in its total retail figures, because it has already agreed to sell this arm of its business. Sales in Poland fell by 38.3% as Tesco streamlined its hypermarkets in the country and closed stores. It recorded a post-tax loss of £78 million ($101 million). The group agreed to sell its 301 Polish stores to Danish retail group Salling Group in June for £165 million ($213 million), and expects the sale to be completed in spring 2021.
Sales in Asia fell 3% in the first half, after fewer customers visited hypermarkets and also spent less money on non-essential items like clothing. In March, Tesco announced it was selling its businesses in Thailand and Malaysia by the end of 2020 for £8.2 billion ($10.6 billion).
Tesco continues sell-offs of international operations
Selling off its operations in certain countries is part of a drive to focus on its more profitable locations: Tesco sold its US arm for £80 million ($103 million) in 2013, and has also sold its operations in France, Turkey, South Korea, Japan, and China over the past decade. When sales of its Polish and Asian operations go through, it will operate only in the UK, Ireland, the Czech Republic, Hungary, and Slovakia.
Alongside its retail operations, Tesco also brought in an additional £386 million ($498 million) from its banking business. This was a 31.4% drop in revenue compared to the same period last year, and it recorded a £155 million ($200 million) loss.
Tesco spent £533 million ($687 million) on its COVID-19 response, it said, mainly on hiring temporary staff, and this hit its operating profit. For its UK, overseas, and bank operations excluding Poland, Thailand, and Malaysia, Tesco recorded a 4.5% drop in operating profit to £1.04 billion.
Tesco also announced that Imran Nawaz, who currently works at food and drink company Tate & Lyle, will join as chief financial officer in April.