Tesco on track to publish bumper earnings because it cashes in on price of dwelling disaster

Tesco is set to post another set of bumper results this week as it cashes in on the cost-of-living crisis and gains market share from rivals.

Profits at Britain’s biggest retailer could even beat last year’s £3.1 billion with sales hitting at least £72 billion, according to analysts.

The results represent a remarkable turnaround for the supermarket, which was laid low more than a decade ago by a huge accounting scandal, over-expansion at home and abroad, as well as a complacent attitude towards the growing threat from no-frills discounters Aldi and Lidl.

But Tesco has since reasserted its grip on the grocery market through a combination of price-match guarantees on basic items such as fruit and vegetables, the success of its Clubcard loyalty scheme, which has 24 million members, and its sheer buying clout.

It now accounts for 28 per cent of grocery sales – a higher market share than before the pandemic, according to the latest figures from research group Worldpanel by Numerator.

‘They’ve learnt their lesson,’ a senior food retailer told The Mail on Sunday.

‘Ten or fifteen years ago they were arrogant and didn’t take the discounters seriously.

‘But now they’re closing the price gap with Aldi and Lidl on staple items and no longer regard own-label as an ugly brother to big brands,’ the source added.

Under chief executive Ken Murphy, Tesco has also gained market share from Morrisons and Asda, both of whom are saddled with huge debts after being sold to buyout groups.

Tesco’s like-for-like sales – a key measure of underlying performance as it excludes the effect of the opening or closing of stores, and acquisitions – are likely to have grown by more than 3 per cent, according to Aarin Chiekrie, an equity analyst on the share research team at stockbroker Hargreaves Lansdown. 

‘Full-year underlying operating profit guidance was nudged to the top end of its £2.9 billion to £3.1 billion target range back in January but given Tesco’s enormous scale, broad product offerings, and cost discipline, this figure still looks a touch conservative,’ Chiekrie added.

‘Looking further ahead, investors are keen to hear how the conflict in Iran is expected to affect the group’s costs and whether there’s been any change in recent customer spending habits.’

The shares have also had a good run and now stand at a 13-year high, valuing the company at £31 billion.

‘Tesco’s defensive credentials have seen it in demand even during the recent market turbulence, with the weekly shop being a non-negotiable for most people,’ said analysts at investment platform AJ Bell.

Higher inflation caused by soaring energy prices should boost sales and revenues, but volumes could be hit as shoppers cut back, hitting Tesco’s margins, they added.

As Britain’s biggest private sector employer with more than 330,000 staff, Tesco also faces higher payroll costs.

It recently agreed a 5.1 per cent rise for store workers, taking their hourly rate to £13.28 an hour at a cost of £200 million to the company.