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Britain's Tesco says coronavirus costs could reach $1.1 billion

Key Points
  • Sees extra costs from coronavirus of £650-925 million.
  • No financial guidance for 2020-21 financial year.
  • Underlying profit up 14% for 2019-20, as expected.
A Tesco supermarket in Glasgow, Scotland.
Jeff J Mitchell I Getty Images

Britain's biggest retailer Tesco expects to take a hit of up to 925 million pounds ($1.1 billion) from the costs of dealing with the coronavirus pandemic and warned it was unable to give a profit forecast for this financial year.

However, the supermarket group said on Wednesday that if customer behavior returned to normal by August, it was likely the extra expenses — mainly related to staff and operations costs — would be offset by higher sales and relief from a business tax introduced by the government to help companies.

"There are significant extra costs in feeding the nation at the moment but ... Tesco is a business that rises to a challenge and this will be no different," CEO David Lewis said, as the company reported a 14% rise in underlying operating profit for the year ended February 29, broadly in line with expectations.

Britain's supermarkets have seen a surge in demand as shoppers have stocked up on essential goods such as toilet roll and pasta during a lockdown to contain the spread of the virus.Industry data last week showed UK grocery sales leapt more than a fifth to a record 10.8 billion pounds in the four weeks to March 22.

However, the crisis has come with higher costs, such as social distancing measures that restrict the number of shoppers in store at any one time, expanding online delivery operations, staff bonuses and hiring more employees.

Tesco's wholesale business is also likely to have been hit hard by the closure of restaurant and cafe customers.

The company estimated extra costs related to the health crisis could be between 650 million and 925 million pounds.

It said that in the last two weeks alone it had recruited more than 45,000 workers in Britain to help cover staff sickness and cope with additional demand. Lewis told reporters on a conference call that the company currently had around 55,000 employees absent from work. 

Tesco, which trades from about 3,800 stores in the UK and Ireland and has a UK grocery market share of 27%, said it made an operating profit before one-off items of 2.96 billion pounds in its 2019-20 financial year.

It proposed a full-year dividend of 9.15 pence per share, up 59% on the year before.

Many companies have been cancelling dividends to conserve cash, and Tesco's payout could prove controversial as it is benefiting from the government's business rate relief scheme.

But Lewis said the company was justified to benefit from the scheme because of the big extra costs it is facing.