Tesco raises full-year forecast following 16.6% jump in profit

Tesco raises full-year forecast following 16.6% jump in profit

Tesco has raised its full-year earnings forecast after the scale of its store and online operations helped it to outperform rivals in the first half.

The supermarket giant beat expectations with a 16.6% jump in profit at a time when retailers are battling supply chain disruptions and labour shortages.

“We’ve had a strong six months; sales and profit have grown ahead of expectations, and we’ve outperformed the market,” Tesco CEO Ken Murphy said.

“With various different challenges currently affecting the industry, the resilience of our supply chain and the depth of our supplier partnerships has once again been shown to be a key asset.”

Buyback plan

Tesco said the strong performance had allowed it to cut net debt by £1.7 billion pounds since February, and it could now afford to start a multi-year share buyback, with the first £500 million to be bought by October 2022. It also paid an interim dividend of 3.2p, in line with a year ago.

The supermarket chain forecast a full-year adjusted retail operating profit of £2.5-2.6 billion, having previously forecast a similar outcome to 2019-20, when it made £2.3 billion.

The company, which has a 27% share of Britain’s grocery market, made an adjusted retail operating profit of £1.39 billion in the first half versus £1.19 billion a year earlier.

Group sales rose 3% to £27.3 billion, while UK like-for-like sales climbed 1.2%, having risen 0.5% in the first quarter.

Winning strategy

Analysts say Tesco is benefiting from a strategy to match prices at German-owned discounter Aldi on around 650 lines and the success of its ‘Clubcard Prices’ loyalty scheme.

The proportion of customers using Clubcard in large stores has grown to 80% from 69% last year, with about seven million shoppers now using the scheme through an app.

Despite inflationary pressures, Tesco said its customers saw prices fall in the first half and they were still falling in the second half.

Murphy also set out Tesco’s strategic priorities going forward – value, customer loyalty, convenience and using cost savings to invest.

“Customers are faced with an increasing range of choice as to where, when and how to shop and the competitive environment has materially changed,” he said.

“We believe that against this backdrop we can thrive.”