Tesco lifts profit outlook as consumer confidence ‘resilient’
Tesco has lifted its profit outlook after seeing a boost in online sales, as the UK’s largest supermarket said consumer confidence is proving “resilient” despite an “uncertain external backdrop”.
The FTSE 100 grocer improved its lower-end operating profit target from £3bn to £3.15bn for the full year, leaving its top-end forecast at £3.3bn.
Industry figures have warned that the Iran war is set to send food prices soaring into next year, but Tesco chief executive Ken Murphy said shoppers are still splashing out.
He told reporters on Thursday: “I think that consumers actually in the UK have been pretty resilient in a very uncertain environment, and my sense is that customers will want to enjoy Christmas, given all that’s going on in the world around them.”
The supermarket giant holds a dominant 27.8 per cent share of the UK’s grocery market, far beyond that of rivals Sainsbury’s and Asda, but has seen its growth falter so far this year.
Tesco posted like-for-like sales growth of 0.9 per cent in the second quarter of this year, marking a further slowdown from the previous quarter’s lower-than-expected one per cent growth.
Last year, Tesco posted 4.6 and four per cent sales growth in the first two quarters of the year, compared to this year’s one per cent growth across the first half.
But the supermarket pointed to a surge in its online business, where sales jumped by eight per cent in the first half of the year. Tesco runs its own Whoosh home delivery arm and recently launched on Deliveroo and Uber Eats.
Consumers hunt for ‘value’
Murphy said the supermarket is focussed on giving customers the best value for money, amid fears that the Iran war could send food prices soaring.
He told shareholders on Thursday: “Against an uncertain external backdrop, we have continued to invest in giving customers the very best value for money.
“Alongside maintaining our strong value proposition, we have continued to innovate across all our ranges, launching over 800 new and improved products during the half.”
The supermarket took £37.4m in revenue in the first half of this year, above analysts’ expectations of £37.2m, as pre-tax profit jumped by 11.5 per cent to £1.5bn.
Tesco is reportedly considering selling off its operations in Hungary, the Czech Republic and Slovakia, which represent the last remnants of the grocer’s once-sprawling global footprint.
Murphy did not comment on the rumours on Thursday, instead pointing to a 38 per cent jump in operating profit across what it calls its central Europe arm, to £63m.
“This reflects volume growth, targeted promotions and better buying, supported by a strong contribution from our Save to Invest programme which helped to offset the impact of cost increases and a stronger competitive landscape,” Tesco’s boss said.
Shares in Tesco jumped by more than three per cent to 492p in early trading.