Tesco lifted its annual profit forecast today after delivering robust first-half results, with the grocery market leader forecasting a good Christmas trading period despite the recent gloomy assessment of consumer confidence.
Over the 26 weeks to 24 August, the group’s retail adjusted operating profit was up 10.0% at constant rates to £1.56bn, driven by volume gains and cost savings, which helped to offset continued operating cost inflation, particularly related to staff pay. Tesco now expects its preferred profit measure to come in around £2.9bn for its full financial year, up from a previous forecast of “at least” £2.8bn.
Retail like-for-like sales were up 2.9%, with growth across its UK (+4.0%), Ireland (+4.7%), and Central Europe (+0.6%) divisions. However, like-for-like sales at Booker were down 1.9% after growth in the wholesaler’s core retail (+0.6%) and catering (+1.7%) operations were offset by the continued decline in tobacco (-7.3%) and poor performance in Best Food Logistics unit (-6.6%) due to weakness in some areas of the fast-food market.
In the UK, Tesco noted that its volume growth was ahead of expectations as inflation eased, with a particularly strong performance in its large stores (+4.2%) helping it gain market share. The retailer highlighted that its overall brand perception had increased by 596bps year-on-year after making improvements across all drivers, including impression (+1,058bps), value (+650bps) and satisfaction (+446bps).
Backed by the Aldi Price Match and Clubcard Prices schemes, Tesco’s food sales in the UK grew by 4.9%, with strong volume performance in fresh food helped by investment in product quality and innovation. The group launched 282 new products during the period, including its ‘Root & Soul’ range of modern vegetarian dishes, and improved a further 580, including its ‘Taste Shack’ and ‘Finest Dine In’ ranges. Tesco noted that sales of its premium Finest continued to grow strongly, with volumes up 14.9% year-on-year as consumers looked to save money by dining at home.
Sales in Tesco’s convenience only grew 0.5% after demand for food-to-go products was impacted by the relatively poor weather over the summer. Online sales grew by 9.3%, driven primarily by volume growth, including a 2ppts contribution from its rapid delivery service, Whoosh, which is now available in 1,460 stores.
Meanwhile, the robust growth in the Republic of Ireland was driven by investments in its product range and a store refresh programme, which was rolled out to a further 11 sites. Tesco’s total sales in the country also grew by 5.6%, boosted by the opening of four new large stores and three Express stores in the half.
“We’ve been working really hard to offer our customers the best possible value, quality, and service and they are shopping more at Tesco as a result,” said Chief Executive Ken Murphy.
“We have lowered prices on thousands of lines, launched or improved over 860 products in partnership with our suppliers and growers, and our customer satisfaction scores continue to improve across a broad range of measures.
“The combination of price, quality and innovation means we are as competitive as we have ever been, and we have been the cheapest full-line grocer for nearly two years. Our strong UK and ROI market share gains across the last year demonstrate our continued momentum.”
Looking ahead, he stated that business was in a good position ahead of the key festive trading period, with volume growth delivering strong financial performance. Murphy noted that the company tracked consumer sentiment every week “and while they’re not doing cartwheels down the hallways, customers are in reasonably good shape”.
He added that consumer sentiment had stabilised as inflation eased, and there was a “willingness to spend a little bit more to treat themselves”, although he cautioned there was still “a lot of uncertainty in the world”.
NAM Implications:
- Profits driven by volume gains and cost savings…
- …on the back of retail like-for-like sales up 2.9%…
- …and volume increases of 4.2% in its large stores helping it gain market share.
- Despite these good results, Tesco remains cautious re consumers willingness to spend.
- i.e. they appreciate that growth still comes at the expense of rivals.
- In other words, Tesco will not slacken its pace…
