Tesco narrowed its profit guidance this morning as its ‘relatively resilient’ shoppers shrugged off economic pressures driven by the Middle East conflict.
Britain’s largest grocer reported a 6.3 per cent increase in adjusted operating profit in the first half to £1.783billion even as unusually hot weather weighed on sales volumes.
Sales rose 1.6 per cent to £33.7 billion in the six months to 29 August.
Tesco had said in April that it was giving a wider profit forecast than usual – of between £3 billion and £3.3billion – given the uncertainty caused by the war in the Middle East.
But this morning it upped the lower end of this guidance, now steering profits between £3.15 billion and £3.30 billion.
‘While consumer confidence has remained relatively resilient in the first half of the year, ongoing geopolitical tensions continue to create uncertainty, and we remain focused on helping customers get the best possible value from their weekly shop,’ the supermarket said.
Chief executive Ken Murphy said he was feeling positive about Christmas
Shares rose 3.1 per cent to 490.7p as Tesco also announced an increase to its share buyback to £950 million, from £750 million.
Chief executive Ken Murphy said consumer resilience ‘is born out of dealing with kind of a series of external shocks and events and kind of uncertainty.’
‘They have to a certain extent become used to it, and they deal with it and they get on with life,’ he added, also pointing to the grocer’s efforts to keep prices low.’
That saw Tesco benefit from shoppers switching to its premium dine-in ranges as restaurant prices have put many off from eating out.
Its Finest ranges saw an 8.9 per cent sales increase as more than 350 new products have been launched, including a shake-up of bakery goods and new deli products. It expects Tesco Finest sales to top £3billion this year.
The results come days after it was revealed that Sainsbury’s and Morrisons ended talks over a potential billion-pound merger.
This would have created a giant with a 23.6 per cent market share – rivalling the 27.8 per cent share held by market leader Tesco, according to industry researchers Worldpanel.
Murphy said the business doesn’t ‘dwell too much’ on consolidation in the industry, when asked about the reports.
‘We’re very focused on delivering our strategic plan. Whatever happens in the market, we’ll respond to it – and really, our plan is to stay ahead through consistently investing in the business.’
Discounters Aldi and Lidl have poached market share from traditional supermarkets over the past few years.
Tesco has responded by adding more products in its Aldi price match as well as offering customers personalised offers through its Clubcard loyalty scheme.
The group is hoping to recapture a market share of 30 per cent, which it last recorded around 2013.
Murphy said the grocer had an ‘ambition to keep on growing’.
He said: ‘I was told six years ago that we had topped out and kind of life was over for Tesco. In the last four years, we have grown share by 113 basis points, which I think most people have been surprised by. So we like to surprise people.’
At its peak in 2007, Tesco accounted for almost £1 in every £3 spent at the checkout tills before dipping to a low of 25.6 per cent in 2020.
Tesco expects a less boozy Christmas
In addition to the rising uptake of GLP-1 weight-loss medications, Murphy said the grocer was also seeing a ‘general trend toward healthier living,’ with customers more interested in getting more protein and fibre.
This has influenced the company to increase its ranges of nutritious ready meals, no and low alcohol products and high-fibre bakery ranges.
Brits may be looking to make healthier choices and drink less booze this Christmas, Murphy said.
He said: ‘I do think it could be a marginally healthier Christmas. Although customers do love to indulge, and we have planned accordingly.’
‘We would say that there might be a more moderate Christmas from an alcohol point of view. We think low and no alcohol will see strong growth. We we think cocktails will do well, and you’ll see more sales of ready-to-drink and premixed cocktails.’
‘Usual suspects’ set to do well include a cheesecake dessert range and party food ranges including prawn toast, Murphy said.
Despite feeling ‘optimistic and positive’ as Tesco enters its critical Christmas trading period, Murphy renewed calls for shops to be given a reprivee on business rates at this month’s Budget.
‘We have long argued that the rate system is antiquated and unfair. Retailers pay, on average, four times their fair share of rates.’
He said his ‘one ask’ of the Government going into the Budget is to exempt all retailers from a higher tax-paying band for commercial properties deemed at least £500,000 in rateable value.
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