Tesco sticks to guidance after strong Christmas

Tesco stuck to its guidance for annual results after strong Christmas sales helped offset rising Covid-19 related costs.

Retail operating profit for the current year is likely to be at least the same as in 2019-20 excluding the cost of repaying business rates relief, Britain's biggest food retailer said.

Total sales in the six weeks to 9 January rose 6.8% driven by an 8.4% increase in the UK and Ireland. Like-for-like sales rose 5.4% as equivalent UK and Ireland sales rose 6.3%. Group retail sales rose 7.3% but Tesco Bank income dropped 25.7%.

Tesco said UK sales rose across all formats, channels and categories and that it led the market for every week of the Christmas period. Sales in the UK were driven by food including a 14% increase for Tesco's "finest" range of premium own-brand products.

Online sales rose by more than 80%, generating almost £1bn of extra sales in the third quarter. Sales at the Booker wholesale business rose 6.7% over the Christmas period but like-for-like sales dropped 8.3%. Sales fell at Tesco's Central European operations.

In the 19 weeks comprising the third quarter and the Christmas period group sales rose 7% and like-for-like sales rose 5.6%. UK and Ireland total sales increased 8.5% and like-for-like sales were up 6.1% in those countries.

The FTSE 100 company predicted annual costs for staff absence and other Covid-19 disruption would be £810m, up from an earlier estimate of £725m.

"The strong momentum in the business and the benefits of sustained elevated sales are enabling us to offset the additional Covid-19 costs we are now expecting to incur as a result of the increasing severity of the pandemic," Tesco said. "As a result, our guidance for the 2020/21 financial year is unchanged."

Tesco's performance during the peak period for supermarkets was more mixed than the strong results announced by Sainsbury's and Morrisons, whose businesses are more focused on UK retail sales. The grocers have benefited from the Covid-19 crisis as households have spent more on eating in with restaurants and pubs closed or limited in their trading.

Shore Capital analyst Clive Black said: "Tesco has indicated good overall trading too in its core chain and Ireland but headwinds from coronavirus restrictions at Booker catering and Central Europe eat into group progress. Hence, we sense that he market will most probably take this update in its stride."

The group's shares fell 1.5% to 238.6p at 09:39 GMT.

Tesco said it would return £5bn to shareholders in a special dividend after selling its businesses in Malaysia and Thailand in December.