Covid Cost Wipe Out Major Portion of Tesco's FY21 Pre-Tax Profit

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  • Britain's biggest retailer reported a 20 per cent fall in full-year pre-tax profits for 2021.
  • The retailer proposed a full-year dividend in line with the previous year.
  • Tesco sales growth is likely to reduce this year as pandemic restrictions ease in the UK.

UK’s biggest retail chain Tesco’s (LON: TSCO) profit before tax dropped by 19.7 per cent to £825 million for FY 21. The drop came about as the company had to pay a high cost of adapting to the pandemic despite observing an exceptionally strong jump in sales. The break-up of group sales displayed a growing UK market share for the year FY 21. The big retailer released its preliminary results for 2020/21 on Wednesday, 14 April.   

The company’s shares fell by 2.54 per cent to GBX 226.20 at 11.38 AM on Wednesday.

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Ken Murphy, chief executive, said that everything about FY 21 was exceptional. While on average, the customers shopped 33 per cent less frequently, but when they did shop, their baskets were nearly 50 per cent bigger. Tesco was well placed to build on the momentum in the business, having displayed incredible strength and agility throughout the last year, said Murphy.

Tesco reported that some of the additional sales volumes were expected to drop as the coronavirus restrictions ease. However, the retailer expects a strong recovery in profitability this year as most of the pandemic related costs would not be repeated. The retailer had to bear an additional cost of nearly £900 million last year for safely operating stores and warehouses during the pandemic, the majority of which was for the UK market only.

The company statement of the world’s third-largest retailer also said that the Tesco Bank should return to profit after displaying a loss of £175 million for FY 21.

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Highlights of the preliminary results

  • Tesco’s revenue was down 0.4 per cent for the financial year 2021 to £57.9 billion (FY 20: £58.1 billion).
  • The retailer’s operating profit plummeted 21.3 per cent for FY 21 to £1,736 million (FY 20: £2,206 million).
  • Its diluted EPS (earnings per share) was 7.54 p for the year, the same as of FY 20.
  • The dividend per share also remained unchanged at 9.15p as of FY 20.
  • The company’s retail free cash flow reduced by 29.8 per cent to £1,187 million for the year (FY 20: £1,690 million).
  • The net debt was down 2.8 per cent to £12.0 billion (FY 20: £12.3 bn).
  • The retail chain’s group sales (excluding fuel) were up 7.1 per cent to £53.4 billion for FY 21 (FY 20: £49.9 billion).
  • For the ‘UK and ROI’ region, the group sales (excluding fuel) jumped 8.8 per cent to £48.8 billion for FY 21.
  • UK online sales shot up by a whopping 77 per cent to £6.3 billion for FY 21.