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Tesco, the UK's largest supermarket chain, expects profits to rise this year and announces a £1 billion share buyback, as it attracts more shoppers to its stores and consumer sentiment improves.
The FTSE 100 company reported a 7.2 per cent rise in sales for the year to February, to £61.5bn, as “inflationary pressures fell significantly”, while adjusted retail operating profits – which exclude Tesco Bank results – rose. by 10.9 per cent to British pounds. 2.76 billion. The company expects this amount to rise to at least £2.8 billion this year.
Pre-tax profits jumped to £2.3bn from £882m the previous year, when it took a one-off non-cash hit of £982m.
Tesco also announced plans to buy back £1bn worth of shares over the next 12 months on Wednesday, after selling its banking business to Barclays.
Chief executive Ken Murphy said customers were choosing to shop more at Tesco, “which is reflected in its growing market share”, adding that its sales had been boosted by its premium Finest range.
The grocers' preliminary results follow recent industry data that showed food price inflation fell to 3.7 percent in March, the lowest level since April 2022, as price pressures continue to ease.
“There's a lot of uncertainty but I'm seeing a slight improvement in customer sentiment…so overall I'm feeling very positive,” Murphy said.
Union Union on Wednesday accused Tesco of “raising mountains of money” amid the cost of living crisis. But Murphy said the company had “now been the cheapest full-line grocer for more than a year” through a combination of price cuts, matching Aldi on price and its Clubcard loyalty scheme.
Although profit margins have recovered to pre-pandemic levels, they are still modest at 4.1 per cent, said Imran Nawaz, the company's chief financial officer.
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Tesco, which has a 27.3 per cent share of the UK grocery market, according to data group Kantar, operates in a highly competitive sector and its performance has been consistent, Murphy said.
“The fact that there are 11 national grocers all competing for share means there is always someone who comes out strong and there is an ebb and flow in the market,” Murphy said, adding that Tesco had “strong momentum” as consumer sentiment improved.
Murphy said he expected food inflation to remain in the low single digits for the rest of the year, although inflation remained steady in cocoa, potatoes and coffee.
“Tesco delivered a good set of results as UK sticky food inflation and a rebound in volume support topline revenue growth,” said William Woods, of Bernstein.
