Tesco forecasts rising profits as inflation ‘lessens substantially’

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Tesco, the UK’s largest supermarket chain, has forecast rising profits this year and announced a £1bn share buyback, as it lures more shoppers to its stores and consumer sentiment improves.

The FTSE 100 company posted a 7.2 per cent increase in sales for the year to February, to £61.5bn, as inflationary pressures “lessened substantially”, while retail adjusted operating profit — which excludes results from Tesco Bank — rose 10.9 per cent to £2.76bn. The company expects that to rise to at least £2.8bn this year. Its shares were up almost 5 per cent at 300p in afternoon trading on Wednesday.

Pre-tax profit jumped to £2.3bn from £882mn the previous year, when it took a one-off £982mn non-cash hit.

Tesco also announced plans to buy back £1bn of shares over the next 12 months on Wednesday, following the sale of its banking business to Barclays.

Chief executive Ken Murphy said customers were choosing to shop more at Tesco, “which is reflected in growing market share”, adding its sales were boosted by its premium range Finest.

The grocer’s preliminary results follow recent industry data showing food inflation fell to 3.7 per cent in March, the lowest level since April 2022, as price pressures continued to ease.

Murphy said: “There is loads of uncertainty out there but I see a gentle improvement in customer sentiment . . . so on the whole I’m feeling quite positive.”

Union Unite accused Tesco on Wednesday of “raking in mountains of cash” amid the cost of living squeeze. But Murphy said the company had “now been the cheapest full-line grocer for well over a year” through a combination of price reductions, matching Aldi on price and its Clubcard loyalty scheme.

Finance chief Imran Nawaz said that although its profit margins had recovered to pre-pandemic levels, they were still modest, at 4.1 per cent.

Murphy said Tesco, which has a 27.3 per cent share of the UK’s grocery market, according to data group Kantar, operated in a highly competitive sector and its performance was down to being consistent. Rivals Asda and Morrisons have lost momentum under private equity ownership, weighed down by the increasing cost of servicing debt.

Murphy said his supermarket was not focused on winning customers from “any one retailer” and brushed off suggestions that the arrival of Tesco veteran Jason Tarry at John Lewis, the owner of Waitrose, would meaningfully impact Tesco’s growth prospects.

“The fact that there are 11 national grocers all competing for share means that someone is always coming strong and there are ebbs and flows in the market,” said Murphy, adding that Tesco had “strong momentum” as consumer sentiment improved.

Murphy said he expected food inflation to stabilise in low single digits for the rest of the year, although inflation remained sticky in cocoa, potatoes and coffee.

William Woods at Bernstein said: “Tesco delivered a good set of results as sticky food inflation in the UK and volume recovery supports top line growth.”


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