Tesco expected to post positive results amid heavy truck and labor crisis
Tesco is set to reveal that it has weathered the worst of the current heavyweight and job crisis when it updates the city next week with its half-year results.
Analysts say the grocery giant will likely avoid the disruptions seen at some of its competitors by raising driver pay rates and offering bonuses to new hires.
All eyes will also be on the banking division to see if it can improve on its poor performance at the start of the year, they added.
A year ago half-year earnings revenue was £ 26.7bn with pre-tax profit of £ 551m. Barclays analysts suggest sales could reach £ 30.4 billion.
Last year’s profits were shaken by Tesco’s decision to reimburse its £ 249million trade tariff bill.
Tesco’s sales growth in the first three months of the fiscal year rose 1.1% despite difficult comparisons to a year ago, when demand soared as the pandemic first struck times and the supermarket shelves have been laid bare.
Online demand had remained high at 1.3 million orders per week, even with the easing of lockdown restrictions. Analysts predict that growth will be the key to meeting annual profit targets.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “Tesco expects retail operating profits to return to pre-pandemic levels this year.
“This comes after the huge additional costs associated with the company’s exit from the pandemic, including hiring an army of additional staff, hurt operating profit. We will know next week if the group is still on track to achieve this goal.
“We wonder if Tesco was successful in driving sales growth in the second quarter, especially online sales. Recently, a lot of money has been spent on digital expansion, so Tesco needs online sales growth to match.
She added that the oil crisis could impact Tesco’s bottom line, while Hargreaves would monitor whether Tesco Bank’s impact continues to hamper performance.
The bank’s sales fell 10% in the first three months of the year as the pandemic continued to hit lending activity and increase bad debt provisions.
Shore Capital analysts said Tesco’s retail performance this quarter would be boosted by “improved payouts for truck drivers and hiring from elsewhere in the industry” that got it through the worst of the crisis.
Retail analyst Clive Black said he expected Tesco’s “modest lost sales” due to current supply chain issues, with smaller Express stores bearing the brunt of the drop .
Large stores, which may have more stock, should have performed better in comparison.
The analyst added that he was “cautiously bullish” ahead of the update and expected to see a “strong trade (in the first half) in the face of very difficult volume comparisons as well as the absence of coronavirus-related costs and bank losses “.
The results should set the tone for the retailer as it enters what is expected to be a difficult festive period for grocers heading into Christmas, as the supply chain crisis continues.
Earlier this week, Prime Minister Boris Johnson said: ‘What we want to do is make sure we have all the preparations we need to make it through Christmas and beyond, not just in sourcing the service stations, but in all parts of our supply chain. “