Coronavirus staffing costs will hit Tesco

Concerned UK shoppers drove Tesco’s sales up 30 per cent in the first few weeks of the pandemic, prompting the group to recruit an additional 45,000 workers in the past two weeks. “Initial panic buying has subsided and service levels are returning to normal,” said outgoing chief executive Dave Lewis, who added that the costs of coronavirus would be partially absorbed by the £585m in business rates relief Tesco has received from the government.

Overall sales contracted by 0.7 per cent, including a 12.1 per cent reduction in central Europe, with Tesco making sweeping changes to its merchandise offer in the region. Retail free cash flow soared from £889m to just over £2bn, which included £167m banked from property disposals and £227m from the sale of its Chinese joint venture, announced last month. 

Tesco intends to return £5bn to shareholders following the £8.2bn sale of its Thai and Malaysian businesses, with a further £2.5bn to be contributed into its pension scheme with the aim of eliminating its deficit. Tesco’s final dividend of 6.5p will cost the group £637m, with its full-year dividend of 9.15p sitting in line with its policy of paying out 50 per cent of underlying earnings.

Wholesaler Booker, which Tesco acquired in a £4bn deal in 2018, delivered synergies of £207m - a year ahead of target, despite weak small business confidence. Management expects Tesco Bank, which experienced a 2.6 per cent revenue contraction, to be pushed into a loss by the outbreak due to a continued loss of income and a spike in bad debts.

Analysts at Goldman Sachs forecast full-year 2021 EPS of 17.74p, rising to 18.69p in 2022.