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Tesco reports record Christmas but expects £810m hit from COVID costs

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Tesco has reported a record Christmas across its business but warned annual coronavirus-related costs are on track to hit £810m.

The UK’s largest retailer which, like rivals, has benefited from its essential status during the COVID-19 pandemic, said it outperformed the market during each week of the crucial festive season.

It revealed a 6.1% rise in comparable sales over the 19 weeks to 9 January, rising to 8.1% in the Christmas period with food sales accounting for the bulk of the increase.

The industry has invested heavily in delivery capabilities during lockdown and other coronavirus restrictions.

Tesco said it completed seven million online orders over the Christmas season with sales up by more than 80% over the 19 weeks.

But it reported that COVID-19 costs, including from an increased level of staff absences, continued to prove a drag on profitability.

It said that it expected the cost burden for its current financial year to March to top £810m – an increase of £85m on its last estimate.

The retailer also moved to reassure customers that, on top of the pandemic disruption, it was also navigating Brexit shifts to its distribution network by reporting “strong levels of availability” in supplies.

However, it admitted some issues for customers in Northern Ireland and Ireland in the provision of ready meals, fruit and some processed meat – a day after it joined rivals in warning of “unworkable” Brexit rules covering the shipment of goods to Northern Ireland from Britain.

Chief executive Ken Murphy said: “Ready meals have been the most affected as they have an eight-day shelf life
so any wait is more likely to have an impact.

“Some processed meat and some citrus fruit has also been impacted, but it is important to stress that our availability in the Republic and Northern Ireland is strong and is very strong in the mainland UK.

“We see this as a challenge at the moment, but not a crisis.”

Tesco maintained its guidance that it expected 2020-21 retail operating profit before exceptional items to come in at least the same level as 2019-20.

But it said that guidance excluded the impact of a repayment of £535m in business rates relief that was promised by the chain in early December.

Mr Murphy told shareholders: “Our focus on looking after our customers, including delivering record availability, robust safety measures and great value, has enabled us to maintain strong momentum through the Christmas period, outperforming the market every week.

“We delivered a record Christmas across all of our formats and channels.

“In response to unprecedented demand for online groceries, colleagues delivered over seven million orders containing more than 400 million individual items over the Christmas period.

“Our colleagues went above and beyond, rising to every challenge in the most exceptional of circumstances and I thank every one of them for this.

“We’re in great shape to keep delivering in 2021 and beyond.”

Shares slipped fractionally at the market open despite Tesco’s performance over Christmas mirroring one of sales growth reported by the wider supermarket sector.

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