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08 April 2020

Tesco Full-Year Results Update

James Rowbury, Investment Research Coordinator
 
Tesco’s results and its full-year outlook have put to bed investors’ view that supermarkets have been raking it in, as shoppers have fled to the stores to panic buy. The retailer’s share price is down 4%.
 
In an uncertain macro-economic environment, consumers are either feeling the pinch or acutely aware of the ensuing economic crisis around them. The result? High volumes of lower-margin discount items, which have been the anchor on the heels of the industry since the rise of the European discount retailers last decade.
 
In addition, the Covid-19 pandemic has brought its own headwinds for essential retailers. Increased security costs, health and safety adjustments for staff, and a capacity constraint to footfall have all lead to a surge in their fixed cost base. In Tesco’s case, this is an eye-watering £925m in impairment charges.
 
To offset these expenses, we look towards a normalisation of consumer shopping habits and a relaxation of social distancing rules – for instance, a return to normal store opening hours, reversion to normal footfall hours, and an increase in store shopping vs. delivery.
Tesco Full-Year Results Update

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