Tesco has warned its full-year results will be lower than expected with profits plummeting and online sales dropping by 11.3% as consumers turn to discount rivals.
For the six-month period ending 27 August, Tesco posted a 10% fall in underlying retail operating profits to £1.25bn, despite group sales (excluding fuel) rising 3.1% to £28.2bn. Despite the drop in profits, sales increased by 6.7% to £32.5bn as the supermarket giant pledged to “support customers through relentless focus on value”.
However, online like-for-like sales declined by 11.3%, with order volumes falling by 10.5% as shoppers continue to return to more traditional shopping behaviours.
Tesco also reported a fall in pre-tax profits to £413m, down 64% from £1,143m in the same period last year.
The UK’s largest retailer, which boasts a 27% share of the UK grocery market, now expects profits for the full year to be between £2.4 and £2.5bn – the lower end of previous guidance and less than last year’s £2.7bn.
Despite the drop in online spend, Tesco remains the number one online supermarket with a digital market share of 35.9%. Sales and orders both remain more than 50% ahead of pre-Covid levels.,
Some 12.9% of the supermarket’s UK sales were made via Tesco.com, an increase on pre-pandemic conditions. The grocer said it had retained “nearly 70% of [its] peak active customer base”.
Tesco has continued to invest in its online offering, adding capacity by further expanding its Click & Collect offer and adding kerbside collection at 180 locations. The retailer has also opened its fifth Urban Fulfilment Centre (UFC), which is already fulfilling more than 3,600 orders each week. There are plans to open two more UFCs in the second half of the year.
Tesco’s rapid grocery 60-minute delivery service ‘Tesco Woosh’ has continued to roll out across the UK and is now available in over 400 stores, after rolling-out to an additional 242 stores. Average basket size has increased to around £25, with over 2,600 products on offer.
Tesco plans to plan to roll the service out to 800 stores by the end of the financial year.
Director at investment firm AJ Bell Russ Mould recognised that Tesco is entering a difficult period but said it has a “decent market position and solid balance sheet”. He also said it was “hard to see the coming months as anything other than extremely difficult”.
Mould pointed out that the profitability of Tesco’s online shopping business will also be affected as the cost-of-living crisis takes hold and shoppers buy less as “smaller basket sizes still cost the same to deliver”.
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