Tesco supermarket warns on profit as inflation bites

 LONDON

Britain’s biggest retailer Tesco yesterday warned that soaring inflation would bite into future profit, causing its share price to slide along with those of rival supermarkets.

Tesco said underlying profit was expected to drop in its current financial year after it jumped by more than one third in 2021/22.

The group said factors impacting performance included “the level of cost inflation” along with “investment required to maintain the strength of... price position relative to the market.”

Tesco added that “further normalization in customer behavior as we come out of the pandemic” would also affect future earnings.

Pandemic lockdowns triggered a surge in online shopping, massively benefitting supermarkets.

Tesco said it expected retail adjusted operating profit of between 2.4 billion and 2.6 billion ($3.1 billion and $3.4 billion) in the year to the end of February 2023.

That compared with profit of 2.65 billion in the year just ended, up 35 percent year-on-year.“Given the significant uncertainties in the external environment, we believe it is appropriate to provide profit guidance in the form of a wider than usual range,” Tesco said.

Traders jumped on the profit warning, with Tesco’s share price the biggest faller on London’s benchmark FTSE 100 index, with a loss of more than six percent in morning deals.

That dragged down rivals, with online supermarket Ocado shedding around five percent and Sainsbury losing 3.5 percent.

“Inflation data is center stage after sky-high readings stateside and in the U.K. while corporate reports also drive the agenda with Tesco languishing at the bottom of the U.K. index, down six percent following its profit warning,” said Victoria Scholar, head of investment at Interactive Investor.

Tesco added that its latest annual net profit slumped to around 1.5 billion from 6 billion after a massive asset sale was not repeated.

As the pandemic began to take hold in March 2020, Tesco struck a deal to sell its businesses in Thailand and Malaysia to Thai conglomerate CP Group for 8 billion.

This has massively skewed its annual net profit performance over the past two years.