Tesco Plc said retail profits are likely to rise this year as the easing of cost controls allows the supermarket chain to cut prices.
Britain's largest grocer said on Wednesday it expects to generate at least £2.8 billion ($3.5 billion) in adjusted retail operating profit in the current financial year. That's just ahead of the £2.76 billion it reported last year, which was in line with previous guidance.
As food price inflation begins to ease, supermarkets are trying to keep prices as low as possible to keep shoppers looking for cheaper alternatives. Tesco is competing with German company Aldi by applying matching prices on many staples.
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The grocery market in Britain is so competitive that Tesco has developed the ability to anticipate and deal with threats from any direction, says chief executive Ken Murphy.
“Having 11 national grocery chains competing for market share means there’s always someone standing out, and the market forces are constantly changing,” he said in a press conference. “I think the secret for us is to maintain consistent quality and service.”.
Tesco shares rose more than 1% in early trading in London. The stock has gained about 8% in value over the past year.
Tesco recently announced plans to invest £1 billion in the share market over the next 12 months. A quarter of the investment will be funded by dividends the retailer received from Tesco Bank. Earlier this year, Tesco agreed to sell a significant part of its banking business to Barclays Plc, in a deal that raised £1 billion in cash for the retailer.
Tesco is optimistic as UK grocery inflation falls to 4.5% in the four weeks to March 17 - the lowest level since February 2022, Kantar said last month. Despite the decline, grocers face challenges from rising costs, including a nearly 10% increase in the minimum wage to £11.44 an hour, which came into effect last week.
“Despite the relentless competition, we are highly optimistic about our position in this environment,” said Murphy.
James Grzinic, an analyst at Jefferies, said last year's results combined with Tesco's "typical conservative approach to guidance" confirmed the continued progress of the UK market leader.
What Bloomberg Intelligence reports:
Tesco’s 2025 financial results forecast, at £2.88bn, appears around 3% below market expectations — likely due to a continued slight 2024 lag in its banking and central European operations. The sale of part of the banking business is helping to fund a 33% increase in share buybacks to £1bn, providing a balance that could cushion any disappointment from earnings estimates.
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Tesco's chief financial officer, Imran Nawaz, said that while these profit forecasts are in place, it may still be too early as the grocer will likely improve as the year progresses.
Source: bnnbloomberg
