Tesco’s operating profit fell 15.6 per cent in the first six months of the year in new chief executive Ken Murphy’s debut set of results.
Profit at the supermarket dropped from £1.23bn to £1.04bn, with a jump in sales due to the coronavirus pandemic weighed down by a hefty loss at Tesco Bank.
On a statutory basis, however, profit leapt 28.7 per cent to £551m.
Shares in the grocer rose 2.9 per cent in the morning’s trading as Tesco forecast that retail operating profit in the full year would be at least as high as last year.
In total sales over the period rose 6.6 per cent to £26.7bn. Like-for-like sales rose 7.2 per cent in Tesco’s UK business, but slipped 0.9 per cent in its European business.
Retail sales increased slightly, rising from £1.14bn to £1.2bn year-on-year, led by food sales which grew 9.2 per cent.
The firm said that the shift to working from home, as well as consumer’s rush to stockpile at the beginning of the pandemic, had seen the average basket size jump 56 per cent.
It added that online sales had risen 69 per cent across the period, with online delivery capacity more than doubled to reach 1.5m slots a week.
Online sales now account for 15 to 16 per cent of the group’s sales, it was added.
Murphy said that he thought the surge in demand for online shopping would continue for the short term.
However, Tesco Bank posted a £155m loss, which the firm said was driven by provision for potential bad debts and reduced income.
It added that it expected to record a loss of up to £200m for the bank for the full year.
The firm said it would pay out a dividend of 3.2p per share.
Murphy, who took over from Dave Lewis just six days ago, said: “The first half of this year has tested our business in ways we had never imagined, and our colleagues have risen brilliantly to every challenge, acting in the best interests of our customers and local communities throughout.”
In a news conference, he said that he saw lots of opportunities ahead, but would not be drawn on details of his long-term priorities.
However, he insisted that despite the current restrictions on household mixing, people would “have as good a Christmas as possible in the circumstances”.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said:
‘’Even though Tesco collected the clicks on a huge scale during the pandemic as it ramped up its delivery service, the six months to the end of August were far from a supermarket sweep for the grocer.
“Additional payroll costs for extra staff, the challenge of dealing with panic buying and the social distancing measures needed in stores and warehouses, has held back performance, even though it still maintains the position of the biggest UK retailer by sales.”
Ross Hindle, analyst at Third Bridge, added: “The past six months have been characterized by larger weekly shops as well as a significant move towards online retail.
“However retailer infrastructure wasn’t prepared for a surge in demand, so higher costs were incurred and the move to online has also created problems. This means top line gains are unlikely to translate directly into profit growth.”
Separately, Tesco announced that Imran Nawaz would join the firm as its new finance chief in April 2021.
Previously, he was chief finance officer and executive director of Tate & Lyle and Senior Vice President of Finance for Mondelēz Europe.