Tesco PLC

While grocers will continue to benefit from healthy sales as people spend more time at home, we believe that demand will moderate. While we anticipate that Tesco will close the year with healthy topline growth, we remain cautious about its long-term growth prospects given the economic recession and high market competition in the U.K. food retail market, especially from the discounters. While we expect higher wages for temporary staff and sick pay to come down, we believe the costs associated with additional permanent roles (16,000 of the temporary roles were converted into new permanent ones) to increase capacity of the online business, protecting employees and customers, are here to stay for the foreseeable future. COVID-19-related costs estimated at £725 million

...We believe Tesco should be able to deliver strong like-for-like (LFL) sales growth on the back of high demand across its food range. Tesco grew its LFL sales in the U.K. and the Republic of Ireland (ROI) by 7.2% for the first half of the financial year (FY) ended Aug. 29, 2020. This was driven by an extremely strong demand for food and household essentials, as COVID-19 restrictions resulted in increased cooking and food consumption at home. Online sales were up by 69% in the half year, and the rate of growth reached 90% during the second quarter. While grocers will continue to benefit from healthy sales as people spend more time at home, we believe that demand will moderate. While we anticipate that Tesco will close the year with healthy topline growth, we remain cautious about its long-term growth prospects given the economic recession and high market competition in the U.K. food retail market, especially from the discounters. Profitability will be lower due to higher cost, price investment,...

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