Tesco reports an 8.7% increase in Q1 underlying sales amidst the Coronavirus pandemic

Tesco (LON: TSCO) said on Friday that its underlying sales in the United Kingdom came in 8.7% higher in the first quarter. The rising costs attributed to the Coronavirus lockdown, however, saw Britain’s largest retailer signalling a flat profit outlook for the upcoming months.

Tesco’s current chief executive officer, Dave Lewis, is scheduled to exit the role on 1^st October. The supermarket group has already named Ken Murphy as its next CEO.

Shares of the company were reported about 1% up in premarket trading on Friday and jumped another 2.5% on market open. At 228 pence per share, Tesco is currently more than 10% down year to date in the stock market after recovering from a low of 211 pence per share in March. Learn more about how to invest in the stock market.

Tesco forecasts £200 million of loss in fiscal 2021

The British multinational warned on Friday that the ongoing health crisis is likely to fuel loan losses in the UK. Accounting for Tesco Bank’s provisions, therefore, the company now estimates to close fiscal 2021 with up to £200 million of loss. Tesco recently sold its Polish business to Salling Group for £181 million.

Britain’s grocery stores remained opened during the countrywide lockdown that had otherwise ordered all non-essential shops to close. Consequently, the UK’s big four grocery retailers, Tesco, Morrisons, Sainsbury’s, and Asda, reported hawkish sales in recent months.

Tesco also highlighted in its report on Friday that its digital sales climbed by a massive 48.5% in the UK and Ireland. Convenience store sales, on the other hand, rose 9.5% in the first quarter. According to CEO Dave Lewis:

“In just five weeks, we doubled our online capacity to help support our most vulnerable customers and transformed our stores with extensive social distancing measure so that everyone who was able to shop in store could do so safely.”

Tesco estimates £840 million of incremental costs in fiscal 2021

The supermarket group attributed its success to higher food sales in Q1 that came in 12% up in the UK. On the downside, discretionary categories, including clothing, registered a 20% decline in the recent quarter.   

The general merchandise retailer, however, also signalled rising costs of operating amidst COVID-19. Tesco now anticipates £840 million of incremental costs associated with the pandemic in fiscal 2021.

At the time of writing, the Welwyn Garden City-headquartered multinational grocer has a market cap of £22.35 billion and a price to earnings ratio of 23.93.