Online sales boost Tesco Q1 sales during Covid-19 lockdown

Supermarket giant Tesco reported a 9.2% rise in UK and Ireland total first quarter sales, driven by a sharp increase in online shopping during the coronavirus lockdown.

Sales came in at £12.2bn for the three months to May 30, taking in most of the lockdown period, and were up 8.2% on a like-for-like basis. Tesco added that it expected a £175m - £200m loss at its banking unit after increasing bad debt provisions on higher unemployment forecasts.

Tesco said costs had also increased as it reopened mothballed warehouses and distribution centres to meet the challenge of operating during the lockdown imposed in England on March 23. The company said it expected current year retail operating profit to be at 2019/20 levels on a continuing operations basis.

"The costs of doing this have been significant and only partly offset by business rates relief and increased volume," the company said.

Online sales were up 48.5% for the quarter as a whole, with the rate of growth increasing to nearly 100% by the end of May. Tesco said it was now delivering 1.3m orders a week after doubling its online capacity and shipped 12.6m during the quarter. The division now represented 16% of total UK sales compared with 9% last year.

Convenience store sales rose by 9.5% including a particularly strong performance from Tesco's One Stop outlets. The company's 896 large stores saw a 5.4% increase as customers shopped less frequently and bought more on each visit with frequency down 32% but basket size up 64%.

"In addition to providing more delivery slots for customers, we have also increased the availability of our click and collect service, which now represents around a quarter of online orders. As a result of the changes we have made, our online grocery business has grown from around 9% to over 16% of our total UK sales," Tesco said.

Full year costs were forecast at £840m including hiring 47,000 extra staff and providing 12 weeks of sick leave for vulnerable employees, partly offset by business rates relief of £532m and a contribution from additional food sales, it added, revealing that the provision of safety-related consumables and personal protective equipment across its 3,628 stores cost £65m.

Hargreaves Lansdown analyst Sophie Lund-Yates said the change in shopping habits benefited Tesco as its bigger stores and range of products were likely behind the higher number of customers switching the retailer from discounters like Aldi.

"Looking beyond the pandemic the key will be keeping hold of these customers, their loyalty is temporary until proven otherwise," she said.

"Financially Tesco has what it takes to make it through the current crisis, despite a swelling payroll bill – including 32,000 members of staff who are currently off work for Covid-19 related reasons. But with costs outweighing the reward of higher sales this year, the priority for investors is getting a handle on exactly when we can expect to see the first signs of profit trickling back through the income statement.”