TIDMTSCO
RNS Number : 1483R
Tesco PLC
26 June 2020
1Q Trading Statement 20/21
DELIVERING FOR CUSTOMERS
Total sales Like-for-like
All sales on exc. VAT, change sales change
exc. fuel basis Sales GBPm (constant rates)
UK & ROI 12,214 9.2% 8.2%
----------- ------------------ --------------
UK 9,912 9.1% 8.7%
ROI 697 19.7% 20.5%
Booker 1,605 6.1% 0.6%
----------- ------------------ --------------
Central Europe (exc.
Poland) 968 3.3% 3.9%
----------- ------------------ --------------
Tesco Bank 198 (26.5)% n/a
----------- ------------------ --------------
Group 13,380 8.0% 7.9%
----------- ------------------ --------------
At actual rates, the Group sales change is 7.9%, UK & ROI
sales change is 9.4% and Central Europe exc. Poland sales change is
0.8%.
These results have been reported on a continuing operations
basis and exclude the results from our businesses in Thailand,
Malaysia and Poland.
Dave Lewis, Chief Executive:
"Through a very challenging period for everyone, Tesco
colleagues have gone above and beyond, and I'm extremely proud of
what they've achieved. Their selfless efforts, combined with our
embedded strategic advantages in stores and online, have helped to
ensure that everyone can get the food they need in a safe
environment.
In just five weeks, we doubled our online capacity to help
support our most vulnerable customers and transformed our stores
with extensive social distancing measures so that everyone who was
able to shop in store could do so safely.
The costs of doing this have been significant and only partly
offset by business rates relief and increased volume. We see the
balance as an investment in supporting our customers at a time when
they need it most."
Headlines (13 weeks ended 30 May 2020)
The strategic growth opportunities identified at the Capital
Markets Day delivered:
-- Channels
o Online
- UK +48.5% (incl. +90% May); ROI +50.9%; Central Europe
+106.3%
- capacity increased from 600k to 1.3m slots per week; capex
GBP4m
- sales run rate indicates c.GBP2bn sales growth this year (from
c.9% to over 16% of sales at end 1Q)
- 590k vulnerable customers added to customer base
o Convenience
- UK Tesco Express and One Stop growth +9.9%; ROI convenience
growth +11.8%
- Booker retail partners growth 23.5% (Premier, Londis,
Budgens)
- 54 One Stop conversions to Tesco Express; +42% avg. uplift
- Jack's; all stores running at more than GBP100k sales/week;
LFL +62%
-- Loyalty
o Pre COVID-19 impact of Clubcard Plus on buying behaviour c.3x
the level anticipated pre-launch
o Change in buying behaviour with lower transactions, bigger
baskets enhances value of Clubcard Plus offer
-- Booker
o Strong retail sales (+23.5%) offset by declines in catering
(down (32.1)%)
o Best Food Logistics sales down (70)%; improving recently to
c.(50)% as customers reopen for business
o In severely challenged food service sector, Booker well-placed
to emerge in a stronger relative position
-- Geography
o UK & ROI sales +9.2%
- UK +9.1%
-- Shopping frequency down (32)%, basket size +64%
-- Significant investment in Aldi Price Match (now extending to c.500 lines)
- ROI +19.7% driven by higher conversion of 'out of home'
consumption
- Booker +6.1%; includes c.5% contribution from Best Food
Logistics
o Central Europe exc. Poland sales +3.3%
- Sale of Polish business to Salling Group A/S agreed(1) ;
completion expected this financial year
o Sale of Thailand and Malaysia businesses approved by
shareholders in May, completion expected in 2H
-- Tesco Bank
o Provision for potential bad debts increased to reflect updated
macro-economic assumptions
o Now expect an operating loss of GBP(175)m-GBP(200)m this year;
capital ratios and liquidity remain strong
Trading update
To help investors and other stakeholders understand a little
better what is happening we are sharing a one-off deeper insight
into our 1Q 20/21 trading performance; the focus of which is our UK
& ROI business. This is shared on our website at
www.tescoplc.com/1Q2020
Total sales in our UK & ROI business increased by 9.2%.
Growth was most marked in online with sales up 48.5% for the
quarter as a whole and the rate of growth increasing to nearly 100%
by the end of May. Sales in our convenience business grew by 9.5%
including a particularly strong performance from One Stop. Our 896
large stores were well-placed to serve customers seeking to shop
less frequently and buy more on each visit, with sales up 5.4%.
Throughout this period, we continued to invest in our everyday
value proposition including the launch of 'Aldi Price Match' in
March. As a result of this, in combination with the strength and
relevance of our overall proposition, we saw net switching gains(2)
to Tesco from Aldi for the first time in over a decade. Customers
who saw our 'Aldi Price Match' campaign were more likely to visit
our shops (+6%), rated our brand more highly (NPS +10%) and
perceived Tesco as better value (+8%)(3) . We are extending 'Aldi
Price Match' to nearly 500 Tesco and branded products and will
continue to seek further opportunities to bring even greater
everyday value to customers at this challenging time.
As we refocused our offer on availability and everyday low
prices, promotional participation reduced from 28% to 14%. We also
saw major shifts in product and category mix as customers focused
more of their purchases on essential items. In the UK, food sales
grew at c.12%, whereas more discretionary categories such as
clothing saw sales declines of c.(20)%. Following a sharp initial
reduction, sales in general merchandise recovered through the
quarter with some categories - toys, home, stationery and
electrical - growing strongly year-on-year, as customers
increasingly looked to add these items to their weekly shop. Fuel
sales, which are excluded from our headline sales performance,
declined by c.(50)%.
As a result of improvements in customer perceptions of Tesco
across all key areas, including value +5.0pts and quality +3.7pts,
the strength of our brand reached its highest level since 2011(4) .
Following our focus on ensuring customer safety, 90% of our
customers believe our stores are a safe place to shop(5) .
Responding to the significantly increased demand for our online
offer, we have grown that part of our business as quickly as
possible. In just five weeks we doubled our online capacity and are
now fulfilling over 1.3 million orders per week. Across the quarter
as a whole, we delivered 12.6 million orders, including to a
priority list of 590,000 vulnerable customers. In addition to
providing more delivery slots for customers, we have also increased
the availability of our click and collect service, which now
represents around a quarter of online orders. As a result of the
changes we have made, our online grocery business has grown from
c.9% to over 16% of our total UK sales.
We originally set out a plan to double the capacity of our
online business in the medium term, including the development of at
least 25 urban fulfilment centres (UFCs). Whilst the construction
of our first UFC in West Bromwich Extra was paused in March due to
government restrictions, we were able to complete the work in June
and our first customer order will be delivered next month. We are
well positioned to capture market growth beyond our original
ambition and will continue with the roll out of the UFC programme
as we respond to the accelerated shift in customer demand.
Our response to COVID-19 has required significant changes to our
operations which have led to a substantial increase in costs, with
the main impact in the UK. The majority of these costs relate to
payroll which includes the provision of twelve weeks' paid leave to
26,000 vulnerable colleagues, in addition to the recruitment of
47,000 temporary colleagues to cover absence and meet increased
demand. We have also incurred costs in areas such as distribution,
where we have needed to re-open previously mothballed distribution
centres and property, where we have incurred costs to adapt the
store environment and temporarily lost tenant income. The provision
of safety-related consumables and personal protective equipment
across all of our 3,628 stores in itself results in a charge of
c.GBP(65)m. In total, our latest estimate of incremental costs for
the UK for the full year is c.GBP(840)m. These costs will be
partially mitigated by the UK business rates relief of GBP532m and
a contribution from additional food sales.
Overall Booker's sales grew by 6.1% including a c.5%
contribution from Best Food Logistics, which was acquired in early
March. Booker saw a significant uplift in its retail business with
sales growing by 24% partially offset by a significant reduction in
customer footfall for our catering business with sales falling by
(32)%. In catering, we are already starting to see our competitive
position strengthen and expect to exit the crisis with market share
well beyond original levels. Booker has provided invaluable support
to our grocery online business including by providing more than
100k additional click and collect slots and directly supplying
nearly 18,000 deliveries to over 1,000 care homes.
In Central Europe, sales growth excluding Poland was +3.3%.
Changes to customer shopping behaviour in the region were similar
to the UK, with high demand for online grocery and a change in mix
of sales towards more essential food items. In addition to the
impact of similar operational changes to those we have made in the
UK, financial performance in Central Europe will also be affected
by the loss of income from the temporary closure of shopping malls
from March to May.
Tesco Bank sales fell (26.5)% as activity in banking and money
services reduced, including the temporary closure of our travel
money business and significantly reduced ATM income.
Looking ahead
Our priority remains ensuring the safety of our customers and
colleagues, and the consistent availability of food.
Whilst any forecast is inherently uncertain, based on an
assumption of a continued easing of lockdown restrictions in the
UK, our current expectation is that Retail operating profit in the
current year is likely to be at a similar level to 2019/20 on a
continuing operations basis.
Following revised macro-economic assumptions regarding GDP and
unemployment levels, we have increased our provision for potential
bad debts at Tesco Bank and we now expect to report a loss for the
Bank of between GBP(175)m and GBP(200)m for the 2020/21 financial
year. We will continue to review any changes made to macro-economic
forecasts and this could result in releases from or additions to
this provision. Whilst headline profitability is impacted in the
short term, the Bank's capital ratios and liquidity remain
strong.
More detail about our actions to provide food for all, safety
for everyone, and support for our colleagues and communities is
shared at www.tescoplc.com/covid-19 .
Contacts
Investor Relations: Chris Griffith 01707 940 900
Sarah Titterington 01707 940 693
Media: Christine Heffernan 0330 678 0639
Philip Gawith, Teneo 0207 420 3143
A call for investors and analysts will be held today at
8.30am.
Dial in number: 0800 279 6619 (toll free) / +44 (0) 844 481 9752
Access code: 6329694#
All materials, including a transcript and playback facility,
will be made available on our website.
We will report our Interim results on Wednesday 7 October
2020.
Notes
1. Subject to antitrust approval.
2. Kantar Worldpanel 12 w/e value switching data to 17 May
2020.
3. Survey by Hall & Partners; fieldwork dates 17 March to 1
April 2020.
4. YouGov.
5. Internal customer viewpoint survey.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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