Tesco
(Picture: PA Wire)Tesco sent a chill through the City today after warning that the cost of living crisis could knock hundreds of millions of pounds off profits this year.
Britain’s biggest supermarket this morning unveiled a £1 billion rise in earnings for the year just gone, as sales accelerated and Covid-19 costs receded.
But Tesco said profits this year could be between £2.4 billion and £2.6 billion, down from £2.8 billion for the year just ended.
The retailer said the “wider than usual” guidance was down to “significant uncertainties in the external environment”. Inflation and a supermarket price war will be the main factors influencing profits, as well as the extent to which pandemic-era shopping patterns return to normal.
CEO Ken Murphy said: “Inflation is very real for everyone with household expenses going up and finances stretched. It has been many years since we have seen living costs rise at the rate they are today, and for our customers that means looking really critically at where they spend their money.”
It came as official figures showed inflation hit 7% in March, creating the worst cost of living squeeze in living memory.
Murphy pledged to stay “laser-focused on keeping the costs of a Tesco trip more affordable” as he fights to hang on to market share even if it eats into profits.
“Our insight tells us that customers are already planning changes to the way they shop, and we will make sure that we are there to support them,” he said. “Own brand will play an important role and we will continue to make sure we have the strongest range and the best possible prices across every tier, for every category with our value range available more widely throughout stores.”
As well as a squeeze on prices, Tesco is seeing “sharply rising labour and energy costs”, analysts at Barclays said.
The City had been expecting profits to hold steady at £2.8 billion this year and shares slumped to the bottom of the FTSE 100 on the update, falling as much as 6%. Other retailers also dropped sharply on the warning from the market leader.
Tesco’s share price decline came despite the announcement of a new £750 million share buyback and a 19% increase in the dividend to 10.9p.
Revenues last year rose 6% to hit £61.3 billion last year and Tesco Bank returned to profit.
