Tesco has today warned of a drop in profits this financial year as surging inflation piles pressure on the supermarket group and its customers alike.
Tesco reported retail adjusted operating profit of £2.65 billion for the year to the end of February, up 36% and in line with guidance.
It sees profits of between £2.4 billion and £2.6 billion for 2022-23.
Shares in the company fell 5% in early trading this morning, the biggest decline of a blue-chip stock in Europe.
"Given the significant uncertainties in the external environment, we believe it is appropriate to provide profit guidance in the form of a wider than usual range," Tesco said.
The UK inflation rate hit a 30-year high of 7% in March, even before April's sharp increase in utility bills.
Surging prices are causing the biggest squeeze on household incomes since at least the 1950s.
Tesco said three factors were likely to influence its performance - the return to more normal customer behaviour after the Covid-19 pandemic, its ability to offset higher costs and the investment required to maintain low prices.
"Clearly, the external environment has become more challenging in recent months," said CEO Ken Murphy.
"Against a tough backdrop for our customers and with household budgets under pressure, we are laser-focused on keeping the cost of the weekly shop in check," he added.
Tesco said today that its Irish like-for-like sales fell by 2.9% to reach £2.487m, although this was up 10.6% compared to the same time two years ago.
The company said the impact from Covid-19 was "particularly strong" in Ireland as the restrictions on hospitality were in place for a longer period than in the UK.
Despite the exceptionally strong comparative, it said its Republic of Ireland like-for-like sales grew by 0.3% over Christmas and it gained market share in the fourth quarter.
Tesco said its Irish online business grew by 3.1% on a one-year basis and now represents 8% of its sales.
During the year it expanded its online offering further this year, rolling out an additional 37 Click & Collect locations and increasing its total slot capacity by 69%.
"I am incredibly pleased with the strong performance of the business during what was another year impacted by the prolonged challenge of Covid-19," said Natasha Adams, CEO of Tesco in Ireland.
"In my short time at Tesco Ireland, I am struck by the dedication and hard work of our 13,000 colleagues right across the business, and encouraged by their commitment to support our customers and communities daily."
Tesco announced a deal to buy ten Joyce's Supermarkets in Galway in November. The acquisition is subject to the approval of the Competition and Consumer Protection Commission.
A cost of living crisis and supply chain disruptions due to Russia's invasion of Ukraine are weighing on the grocery sector.
The war in Ukraine has hurt supplies of sunflower oil, and has driven-up animal feed and wheat prices, which has had a knock-on effect on meat, dairy and bakery.
Soaring energy prices, as well as increased labour costs, have also added to the cost of doing business.
Market data suggests shoppers have started to shift their buying habits to save money, opting for more cheaper own-label food products.
Tesco said group sales rose 3% to £54.8 billion in 2021-22. It outperformed its three biggest rivals in the UK - Sainsbury's, Asda and Morrisons.
The group has to date returned £300m to shareholders through a share buyback programme and has committed to a further £750m by April 2023.
