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Tesco shares sink on £925m coronavirus hit despite sales boom

Tom Belger
Finance and policy reporter
A Tesco supermarket cashier wearing protective face mask in London. (PA)

Tesco (TSCO.L) shares slumped on Wednesday 8 April after it warned the coronavirus crisis could cost it up to £925m ($1.14bn) and declined to publish new financial forecasts.

Investors sold stocks in Britain’s biggest supermarket chain despite it confirming a 30% surge in UK sales and the green light for a £5bn ($6.15bn) dividend payment.

It said shoppers had “cleared the supply chain” of certain products, though panic buying has now begun to subside. It has hired more than 45,000 new staff in the past fortnight alone.

Higher sales have come alongside higher costs, with Tesco highlighting a significant leap in payroll and distribution costs. New hires have been not only to meet extra demand but also to “cover the work of those colleagues who are absent and being paid,” it said in its preliminary 2019-2020 results published on Wednesday.

Read more: Food prices could rise as UK faces seasonal worker shortages

The extra expenses are estimated at between £650m and £925m. The company’s expectation that these costs could be “largely offset” by higher sales, a government business rate holiday and “prudent” management failed to reassure investors, with its shares down 3.6% in morning trading in London. This is the company’s expectation only if there is a “return to normal” in customer behaviour by August.

Dave Lewis, chief executive, said: "COVID-19 has shown how critical the food supply chain is to the UK and I'm very proud of the way Tesco, as indeed the whole UK food industry, has stepped forward.

“In this time of crisis we have focused on four things; food for all, safety for everyone, supporting our colleagues and supporting our communities.”

Read more: WHSmith to sell groceries in hospital stores to help NHS workers

Supermarkets like Tesco have been “one of the few winners” amid unprecedented market and business turmoil, according to Michael Hewson, chief market analyst at CMC Markets UK.

But Hewson said the retailer may face “difficult questions” as it plans to continue dividend payments despite growing controversy over supermarkets receiving an estimated £3bn in new tax breaks. Rival high street retailers are urging supermarkets to hand back business rate relief aimed at the majority of shops which have been forced to close, according to the Times.

Tesco confirmed a £5bn special dividend payout to shareholders will go ahead after confirming it had sold its Thai and Malaysian businesses.

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