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Highlights
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Tesco PLC has raised its full-year profit guidance after expanding its share of the UK grocery market despite slower sales growth in the second quarter.
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Retail like-for-like sales increased by 2.9% for the 26 weeks ending August 24, compared to a higher growth rate in the previous quarter.
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The company reported a 15.6% jump in adjusted operating profit, driven by strategic investments in value, quality, and service.
Overview
Tesco PLC (LSE:TSCO) has adjusted its full-year profit guidance upwards as it continues to grow its share of the UK grocery market, despite experiencing a slowdown in sales growth during the second quarter. Retail like-for-like (LFL) sales for the 26 weeks ending August 24 increased by 2.9%, down from a 3.4% growth rate recorded in the first quarter. The LFL sales specifically in the UK showed a similar trend, rising by 4.0%, compared to a 4.6% increase in the previous quarter.
Despite this deceleration in growth, Tesco managed to expand its market share by 62 basis points from the previous year, reaching 27.8%, which is the highest market share recorded since January 2022. This growth in sales volume was attributed to significant investments in value, quality, and customer service, which included price reductions on over 2,850 products, averaging around 9% in the UK.
The company reported an impressive 15.6% increase in adjusted operating profit, totaling £1.65 billion. Excluding one-off items related to Tesco Bank, profits from the retail segment increased by 9.7%. Due to the stronger-than-anticipated sales growth in the first half of the year, Tesco now expects to achieve around £2.9 billion in retail adjusted operating profit for the full year, an increase from the prior guidance of "at least £2.8 billion."
In addition, Tesco anticipates a £120 million contribution from the remaining Tesco Bank business, which was agreed to be sold to Barclays earlier this year. This includes a non-recurring income benefit of £42 million from a new pet insurance deal. Ongoing, the supermarket expects an adjusted operating profit contribution of between £80 million and £100 million per year from Tesco Bank.
While retail cash flow decreased by 7.8% to £1.3 billion and net debt rose by 2.1% to £9.7 billion, Tesco declared an interim dividend of 4.25 pence per share, representing 35% of the previous full-year payout. Analysts project a 3.8% increase in like-for-like sales, indicating a steady acceleration from the 3.4% growth seen in the first half of 2023.
