Tesco raises profit guidance after strong summer sales

Tesco has upgraded its profit guidance for the full-year after a strong summer of spending helped it grow market share.

While Britain’s biggest supermarket cut its profit guidance earlier this year due to a looming price war, it now feels more confident after an unusually hot summer and a “better-than-expected” customer response to its price cuts.

Tesco’s like-for-like sales rose by 4.3% in the six months to 23 August, while overall revenue rose 5.1% to £33.1bn.

The supermarket consequently raised its full-year operating profit guidance to between £2.9bn and £3.1bn, after lowering it to £2.7bn to £3bn back in April.

Amid the struggles of Morrisons and Asda, Tesco’s market share is up almost a percentage point this year and now sits at 28.4% of the total UK grocery market, according to Worldpanel.

A strong summer saw like-for-like sales grow 4% in the second quarter, a slight dip from 4.6% in the first three months of the financial year.

CEO Ken Murphy said “competitive intensity remains high” but the steps it has taken are making it cheaper relative to the market. In the UK, Tesco has reduced the price of 6,500 products year-on-year, with an average reduction of around 9%, it said.

“Our market share gains in the UK are a particular highlight and reflect the decisive action we took at the start of the year to further invest in value, quality and service,” Murphy added.

In April, Tesco announced it was targeting £500m in cost savings to help it remain competitive on pricing.

These savings are now offsetting its inflationary costs, including the increased national insurance rates (costing it about £235m this year) and the new Extended Producer Responsibility packaging levy (about £90m), Tesco added.

In the UK, like-for-like sale grew 4.9% in the first half of the year, ahead of Ireland and Central Europe. This was led by food sales up 5.7% with a particularly strong volume performance from fresh food, Tesco said.

Its premium range, Finest, also saw strong growth with sales up 16% year-on-year and 33% over two years.

Tesco’s online sales rose 11.4% to £3.7bn in the period and the retailer now holds 36.9% of the market. This was helped by the online launch of its clothing brand, F&F, and the continued growth of its Whoosh rapid delivery service, which saw sales grow 59%.