Tesco

Financial overview

• Overall revenues rose 4.4% to £68.19bn in FY2023 with group retail sales climbing 7.3% to £60.67bn
• Strong operating profit recovery, surging 100.1% to £2.82bn
• Pre-tax profit margins climbed from 1.4% to 3.4% delivering profits of £2.29bn
• UK and ROI revenues rose 7.6% to £56.34bn with like-for-like sales up 7.3%
• UK online sales jumped 10.4% to £6.2bn to account for 13.1% of total sales

Tesco delivered a rebound in profitability for the year to 24 February 2024 (FY2023) with operating profits surging 100.1% to £2.82bn while pre-tax profits climbed from £0.88bn to £2.29bn.

The group saw statutory revenues climb 4.4% to £68.19bn while its more widely reported group sales climbed 7.4% to £61.48bn.

Tesco chief executive Ken Murphy commented “This strong performance reflects the hard work of colleagues across the whole Tesco Group, and their commitment to serving our customers. Customers are choosing to shop more at Tesco, which is reflected in growing market share as they respond to the improvements we’ve made to the value and quality of our products.”

Retail sales across the group rose 7.3% to £60.67bn and 6.8% on a like-for-like basis with inflation falling through the year and volume growth in the UK and ROI across the second half.

The retailer saw its net debt fall £729m from £10.49bn to £9.76bn due to strong cash flow and a Bank special dividend of £250m.

Tesco had proven resilient in FY2022 as group sales increased 5.3% but profit declined amid rising overheads and the cost-of-living crisis.

Retail sales in FY2022 increased by 5.0% to £56.65bn, up 5.1% on a like-for-like basis. In the UK & ROI total sales had reached £52.37bn, representing like-for-like growth of 4.7%.

Statutory profit before tax had more than halved in FY2022 to £0.88bn from £2.03bn the previous year owing to a £982m impairment charge relating to non-current assets (mainly property) and weakening UK property values.

Tesco’s group operating margin fell from 4.2% in FY2021 to 2.2% for the year to February 2023 (FY2022).

Market share

Tesco’s UK grocery market share stood at 27.3% during the 12 weeks to 17 March 2024, according to Kantar, with the retailer commenting it grew volumes “ahead of the market”. It remains the clear market leader, well ahead of Asda and Sainsbury’s by over 10 percentage points. 

Tesco said its overall market share grew by 28bps year-on-year to 27.6%, with a “particularly strong performance” in its large stores.

UK sales and like-for-like sales analysis

Tesco saw UK and Republic of Ireland and Booker sales climb 7.6% to £56.34bn in the latest financial year.

UK sales increased 8.1% to £44.38bn while revenues in the Republic of Ireland jumped 9.3% to £2.89bn during FY2023. Sales at Booker rose 4.6% to £9.08bn during the period.

Like-for-like sales increased 7.3% with inflation gradually falling across the year. Tesco said it “worked hard to cut prices across everyday grocery lines in response to falling global commodity prices. Volumes were stronger than anticipated across the year and returned to growth in the second half”.

Within the UK, Tesco said like-for-like sales climbed 7.7% “driven by a strong performance across all formats and channels”. Food sales rose 9.3%, with volume growth in the second half “supported by market-leading availability”, as well as continued investment in price and quality.

Home and clothing sales, which account for around 7% of total UK sales, declined by 3.4%, “reflecting the impact of strategic ranging decisions, including exiting low returning categories such as large electricals”. Excluding these impacts, Tesco said sales were “broadly flat”.

Tesco had seen revenues climb 4.8% to £52.37bn in the UK and Republic of Ireland in FY2022. In the UK sales had grown by 3.3% to £41.04bn, with sales in Ireland increasing 5.4% to £2.64bn. Like-for-like sales increased by 4.7% year on year, with growth of 6.7% in the second half on the back of strong Christmas trading.

Booker catering sales had recorded strong growth of 12% in FY2022, benefiting from continued market share gains as it added 451 new retail partners during the year and opened its 4,000th Premier convenience store.

Adjusted operating profit in the UK and ROI grew 15.7% to £2.67bn with operating margins of 4.2% in FY2023. Tesco said the rise reflected the cumulative effect of its Save to Invest programme with current year operating margin now similar to pre-pandemic levels.

UK & ROI adjusted operating profit was £2.31bn in FY2022, down 7% at constant rates, primarily reflecting the impact of lower year-on-year volumes, the ongoing investment in its customer offer and significant operating cost inflation.

Adjusted operating margin had declined to 3.8% for the year from 4.2% a year earlier. This was owing to several factors including a lower mix of higher-margin non-food items and customers trading down during the cost-of-living crisis.

The fall in profit in FY2022 had reflected the impact of lower year-on-year volumes, ongoing investment in its customer offer and significant operating cost inflation, partially offset by a strong recovery at Booker and the acceleration of the Save to Invest programme.

Through the Save to Invest initiative Tesco delivered around £640m savings in FY2023, off the back of £550m of savings in FY2022, surpassing its £1bn cumulative target. Initiatives included streamlining its management structure in larger stores, closing all remaining counters, improving energy efficiency, and reducing costs.

Ecommerce sales performance

Online sales jumped 10.4% to £6.2bn in FY2023 which the retailer said included a c.2ppts contribution from the roll-out of Tesco Whoosh.

Tesco Whoosh, its rapid delivery service, is now available in 1,424 stores, having added a further 424 in the year. The number of active Tesco Whoosh customers more than doubled year-on-year in FY2023 as the retailer expanded the offer to 66% of the population.

Overall online average orders per week were up 5.3% year-on-year to 1.2 million with Tesco further improving the proportion of ‘perfect orders’, meaning more customers received their order on time and at full availability.

Customer satisfaction scores improved as a result, with availability up 21ppts and price satisfaction up 9ppts year-on-year. Online sales participation remained “stable” at around 13% of total UK sales.

Online sales had declined by 5.4% in FY2022 as more customers returned to shopping in stores. The average number of weekly online orders declined to 1.1 million from 1.2 million in FY2021 and from 1.6 million during the height of the pandemic, when Tesco doubled capacity to meet the needs of home-based shoppers. By comparison, average weekly orders had reached just 0.7 million in FY2019.

Online sales participation was 13% in FY2022, with ecommerce sales ahead 57% on a three-year basis. The company had seen a 1% increase in online sales during the second half of the year as channel shifts stabilised.

UK stores financial analysis

Tesco reported strong sales across both large and convenience store formats, by 8.2% and 4.5% respectively in the latest financial year.

It said it invested across key seasonal events in its large stores, including increasing the number of colleagues on the shop floor, delivering “market-leading” availability, which led to an improvement across its customer metrics.

Convenience sales were impacted by trading over exceptionally hot weather in the first half and by some customers switching a greater level of spend to its large stores. City-centre stores continued to perform well, rising 6.0% year-on-year.

Tesco had reported robust sales growth in both large and convenience store formats in FY2022, rising 4% and 6.4% respectively, driven by particularly strong performance in food and higher footfall as customers switched back into stores from online. Growth had been particularly strong in city centre convenience stores, notably in the London region where sales grew by 9.4%.

Total stores in the UK and ROI grew from 3,878 to 3,956 in the latest financial year.

Capital expenditure within the UK and ROI climbed from £1.07bn to £1.17bn in FY2023 with Tesco refreshing a total of 389 stores and opening seven superstores, 60 Tesco Express stores and 27 One Stop stores in the UK. In Ireland, it opened one superstore in Adamstown in the first half, followed by four Tesco Express stores in the second half.

UK sales densities climbed to an estimated £995 / sq ft in the latest financial year, up from £930 / sq ft in FY2022 although down on the past few years.

Densities have come under pressure as online revenues continue to take a higher share of turnover.

Group financial analysis

Tesco delivered statutory revenues of £68.19bn in FY2023, rising 4.4% on the previous year, with fuel sales declining 17.2% primarily due to reduced retail prices.

Its more widely reported group sales which exclude fuel (which Retail Navigator accounts for in the above chart under the UK sales) jumped 7.4% to £61.48bn with strong sales performance across the group. Sales from continuing operations at Tesco Bank (insurance, ATMs, travel money and gift cards) climbed 21.7% to £0.81bn

Retail like-for-like sales climbed 6.8% with inflation falling throughout the year, and volume growth in the UK and Republic of Ireland across the second half.

Like-for-like sales within the UK and ROI surged 7.3%, with the UK up 7.7% and ROI rising 6.8%.

Booker also delivered a strong performance, rising 5.4% on a like-for-like basis with retail sales (excluding tobacco) growing 11.0% like-for-like, supported by a further 211 net new retail partners in the second half and record levels of availability.

Sales in central Europe climbed 0.2% on a like-for-like basis in what Tesco called “a challenging trading environment,” with investments in value supporting an improving volume trajectory during the second half.

Total group revenues had risen 7.2% to £65.32bn in FY2022 with retail revenues increasing 5.1% to £56.55bn and Tesco Bank recording a 20.1% increase to £1.10bn.

In Central Europe, Tesco’s sales had grown by 8.3% to £4.18bn in FY2022 across its markets in Hungary, Czech Republic and Slovakia. At constant exchange rates revenue increased by 10% and like-for-like sales jumped by 10.4%.

Group profits soared in the latest financial year, with operating profits of £2.82bn.

Retail adjusted operating profit climbed 10.9% in constant currency to £2.76bn which included around £640m from its Save to Invest programme. Within the UK and ROI, adjusted operating profit rose 15.7% to £2.67bn as a “strong trading performance and accelerated cost savings offset significant cost headwinds and our investments in value, quality and service”.

Within central Europe adjusted operating profit fell 50.0% to £90m, primarily driven by cost inflation headwinds and regulatory actions in Hungary.

Tesco saw overall group pre-tax profits climbing from £0.88bn to £2.29bn with profit margins recovering to 3.4%, having slid to 1.4% in the more challenging FY2022.

Group profits had been on an improving trend since Tesco’s five-year turnaround, but suffered in FY2022 from higher overheads, investment in price and one-off property charges of £982m.

In FY2022 group adjusted operating profit declined 6.9% to £2.63bn from £2.85bn. Statutory operating profit fell 40.4% to £1.52bn.

Profit for Tesco’s UK & ROI business in FY2022 was £2,307m, down 7% year-on-year with a profit margin of 3.8%.

As a result of exits from Thailand, Malaysia and Poland in 2020, the international business accounted for 6% of group sales in FY2022, compared with 16.4% in FY2019 and 30% in FY2014.

Employees

Employee numbers for FY2023 will be updated when the group files its annual report later in the year.

At the end of the 2022 financial year (ended February 2023), Tesco employed around 337,000 staff across the group, around 310,000 of whom were based in the UK and ROI. This compares to group staff levels of 423,000 three years earlier and reflects a number of international disposals as well as increased focus on operational costs.

The number of group employees has been on a downward trend over the past few years as Tesco disposed of non-core operations internationally as well as businesses such as Dobbies, Giraffe and its opticians business. It has also reduced its head office and middle management staff as part of cost cutting initiatives over the past couple of years.

The UK figures from 2015/16 are not comparable with previous years as they now include ROI.

Staff costs to sales ratios stood at around 11.6% in FY2022 for the group overall.

Tesco’s staff costs may come under pressure going forward, following ongoing commitments to increase hourly pay for all UK store staff, which reached £11.02 per hour by the end of FY2022.

Forecast

Tesco said the investments it has made to date “have strengthened our offer to customers, made us more efficient, and more digitally capable, establishing a strong foundation for future growth.”

For the 2024/25 financial year, it expects retail adjusted operating profit of at least £2.8bn. In addition, it expects total adjusted operating profit from the retained Tesco Bank business of around £80m, which includes a part-year amount of partnership income, based on the completion of the transaction towards the end of this calendar year.

Tesco is well positioned for continued year-on-year growth with its strong Clubcard ecosystem, bolstered ecommerce offer and ‘save to invest’ strategy. Retail Navigator expects the retailer to achieve revenues of more than £83bn by FY2028.