Tesco PLC on Thursday raised its annual guidance as more shoppers flocked to the aisles of the UK’s largest retailer.
The Welwyn Garden City, England-based grocer now expects to deliver around £2.9 billion in retail adjusted operating profit for the financial year ending in February, up from previous guidance of ‘at least £2.8 billion’ before. This will compare to £2.76 billion in financial 2024.
‘We are in good shape, with volume growth delivering strong financial performance,’ said Chief Executive Ken Murphy.
In response, shares in Tesco rose 2.1% to 362.40 pence in London on Thursday. The wider FTSE 100 index was little changed.
Pretax profit from continuing operations rose 20% to £1.39 billion in the 26 weeks to August 24 from £1.16 billion a year prior.
Adjusted operating profit increased 16% to £1.65 billion from £1.43 billion. Within this, retail adjusted operating profit rose 9.7% to £1.56 billion from £1.42 billion.
Revenue from continuing operations climbed 3.5% to £31.46 billion from £30.40 billion. Including discontinued operations and fuel, sales rose 3.1% to £35.18 billion from £34.15 billion.
Tesco said growth was volume driven, with Retail like-for-like sales up 2.9%.
‘The significant investments we are making in value, quality and service across the group have delivered volume growth ahead of our expectations in the first half,’ Tesco said.
UK like-for-like sales grew 4.0% to £22.85 billion, Republic of Ireland sales rose 4.7% to £1.45 billion, and Central Europe sales increased by 0.6% to £2.03 billion.
Booker was the one weak spot, with like-for-like sales down 1.9% to £4.62 billion, reflecting a decline in the tobacco market and Best Food Logistics volumes.
Tesco said UK volume growth ‘was ahead of our expectations, and we grew consistently ahead of the market’.
Overall UK market share grew by 62 basis points year-on-year to 27.8%, its highest market share level since January 2022, with a particularly strong performance in large stores.
Tesco noted it has now delivered 15 consecutive four-week periods of market share gains and 19 consecutive four-week periods of switching gains.
UK food sales grew by 4.9%,including a particularly strong volume performance in fresh food. ’Finest’ range sales continued to rise particularly strongly, with volumes up 15% year-on-year and over 20 million customers shopping Finest in the half.
Home & Clothing sales grew by 0.3%, which includes a 1.3-percentage-point drag from the transition to the new partnership with The Entertainer. Excluding this impact, Home & Clothing sales grew by 1.6%, primarily driven by a strong clothing performance.
UK online sales grew by 9.3%, driven primarily by volume growth.
Tesco Bank had adjusted operating profit from continuing operations of £94 million, up from just £9 million a year ago. This includes £42 million of non-recurring benefits, mainly due to upfront income recognition from a new five-year pet insurance agreement.
Diluted earnings per share were 14.62 pence, up 20% from 12.25p. The interim dividend was increased 10% to 4.25p from 3.85p.
Tesco reported continued strong retail free cash flow of £1.26 billion in the first half compared to £1.37 billion last year, the fall reflecting a lower benefit from working capital and higher tax paid.
Tesco continues to expect to generate retail free cash flow within its medium-term guidance range of £1.4 billion to £1.8 billion.
In addition, Tesco said it is ‘on track’ to deliver the £500 million efficiency savings target for the financial year, with an around £260 million contribution in the half.
The firm expects an adjusted operating profit contribution from the retained Tesco Bank business of around £120 million for the financial year.
On an ongoing basis, Tesco continues to expect an adjusted operating profit contribution of between £80 million to £100 million per year, including strategic partnership income from Barclays.
In February, Tesco announced the sale of most of its banking arm to Barclays in a deal worth up to £1 billion.
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