Shares in Tesco fell 4.7 percent after bosses estimated extra costs related to the coronavirus crisis could be between £650 million and £925 million. Supermarkets across the UK have seen a surge in demand as shoppers ‘panic buy’ and stock up on essential goods such as toilet roll and pasta amid the coronavirus lockdown.
However, the crisis has come with higher costs for supermarkets, such as social distancing measures that restrict the number of shoppers in store at any one time, expanding online delivery operations, staff bonuses and hiring more employees.
Tesco said on Wednesday if customer behaviour returned to normal by August, it was likely the extra expenses – mainly related to staff and operations costs – would be offset by higher sales and relief from a business tax introduced by the government to help companies.
The company reported a 14 percent rise in underlying operating profit for the year, ending on February 29, broadly in line with expectations.
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CEO David Lewis said: “There are significant extra costs in feeding the nation at the moment but Tesco is a business that rises to a challenge and this will be no different.”
Tesco’s wholesale business is also likely to have been hit hard by the closure of restaurant and cafe customers.
It said that in the last two weeks alone it had recruited more than 45,000 workers in Britain to help cover staff sickness and cope with additional demand.
Mr Lewis said the company currently had around 55,000 employees absent from work.
Meanwhile, the supermarket giant said that “significant panic-buying” in recent weeks cleared its supply chain of certain items as sales jumped by 30 percent.
Tesco has committed to paying shareholders a final dividend of 6.15p per share, totalling £635 million, after posting a surge in profits.
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The payout comes after the retailer secured around £585 million worth of business rates relief from the Government for the current financial year, which was announced by Chancellor Rishi Sunak as part of his business support package.
Tesco, which trades from about 3,800 stores in the UK and Ireland and has a UK grocery market share of 27 percent, said it made an operating profit before one-off items of £2.96 billion in its 2019-20 financial year.
Many companies have been cancelling dividends to conserve cash, and Tesco’s payout could prove controversial as it is benefiting from the government’s business rate relief scheme.
But Mr Lewis said the company was justified to benefit from the scheme because of the big extra costs it is facing.
Industry data last week showed UK grocery sales leapt more than a fifth to a record £10.8 billion in the four weeks to March 22.
Tesco bosses said surging demand resulted in the sale of six million tins of baked beans, 3.3 million tins of tomatoes and 3.6 million packs of toilet roll each week as stockpiling increased.
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