Tesco annual profit cut in half as rising costs and inflation hit

Corkman Ken Murphy, chief executive of Tesco, said the group has been contending with "unprecedented levels of inflation" and rising costs of operations. 

Pre-tax profits at Tesco have been cut in half as the supermarket giant contends with high inflation and rising operational costs.

In the year to the end of February, across all of its operations, Tesco generated a pre-tax profit of £1bn (€1.14 bn) down from the over £2bn (€2.27 bn) recorded the year prior. Despite the drop in profits, the company’s revenue grew from £61.34bn (€69.68 bn) to £65.76bn (€74.7 bn).

Cork-born Ken Murphy, chief executive of Tesco, said the results come despite “unprecedented levels of inflation” in the prices paid to suppliers as well as the rising costs of running their operations.

He added that the company continues to target growth opening 91 stores across the group including the acquisition of nine Joyce’s stores in Ireland in June. Tesco has 166 outlets in Ireland.

Tesco recorded sales of £57.66bn (€65.5 bn) - up 5.3% on the previous year - which excludes Vat and the sale of fuels. In Ireland, sales went up 3.3%.

Natasha Adams, chief executive of Tesco Ireland, said she was “pleased with the solid performance” over the past 12 months despite the challenges.

“Despite inflationary challenges we saw solid sales growth, particularly in the second half of the year, and we also delivered a very strong Christmas," she said. 

“Customers have responded well to our investments in value and price, and this trend has continued into 2023.”

Adjusted operating profit - which strips out once-off costs - dropped 6.9% to £2.6bn (€2.95 bn).

Retail adjusted operating profit for Ireland and the UK stood at £2.3bn (€2.61 bn), down 7%, which the company said was driven by the impact of lower year-on-year volumes and ongoing investment in their customer offers.

Over the next financial year, Tesco said it is expecting to deliver a “broadly flat” level of retail adjusted operating profit.

Tesco is also seeking further share buybacks over the next year.

“We have already bought back over £1bn worth of shares and have today announced a further £750m worth over the next twelve months,” Mr Murphy said.

The company’s net debt remains relatively unchanged at £10.5bn (€11.92 bn) - down just 0.2%.

Mr Murphy said over the last few years Tesco has “fundamentally repositioned our value proposition” adding that they are at the “most competitive we have ever been” with their Aldi Price Match and Clubcard prices.

Tesco Clubcard sales also rose in popularity here as it pushed discounts through their use. In Ireland, sales penetration through the Clubcard rose by 77% with approximately 700,000 users.

UK trade union Unite criticised the supermarket giant for the retail profit it made during the year accusing it of “rampant profiteering”.

However, Mr Murphy said their prices are “dramatically below” the headline grocery price inflation of 17% reported by market researcher Kantar but he did not provide a figure.

“Our profits fell by 7% this year and that is despite the fact that we achieved a record level of cost savings," he told reporters.

"That for me is a very material proof point that we worked very hard for both customers and for colleagues this last financial year."

Figures from Kantar show grocery prices increased by 16.8% in Ireland during the first three months of the year. Tesco Ireland accounted for 22.1% of the total spend in supermarkets during that time.

Tesco said it is expecting to deliver a “broadly flat” level of retail adjusted operating profit this year.