Tesco sees annual profits soar, but warns over hit from rocketing inflation

Tesco has revealed annual profits more than tripled, but warned retail earnings will come under pressure this year from soaring inflation and as shoppers return to pre-pandemic shopping habits.

The supermarket giant saw group pre-tax profits jump to £2.03 billion in the year to February 26, up from £636 million the previous year, thanks to rising sales and lower costs related to the pandemic.

It posted a 58% jump in underlying operating profits to £2.8 billion, with retail earnings up 34.9% at £2.6 billion.

The group said sales excluding fuel rose by 2.5% to £54.8 billion, with UK like-for-like growth of 0.4% – up 8.2% on a pre-pandemic two-year comparison.

Profits were helped as it saw Covid-19 costs fall to £220 million from £892 million the previous year.

But it warned that retail operating profits are expected to fall this year, to between £2.4 billion and £2.6 billion as the group’s own costs are set to soar and it invests in prices to remain competitive amid rocketing food inflation.

It is also said customer behaviour is also returning to more normal patterns as shoppers rely less on supermarket trips as the UK emerges from the pandemic.

Tesco chief executive Ken Murphy said: “Clearly, the external environment has become more challenging in recent months.

“Against a tough backdrop for our customers and with household budgets under pressure, we are laser-focused on keeping the cost of the weekly shop in check – working in close partnership with our suppliers, as well as doing everything we can to reduce our own costs.”