Tesco investors were full of Christmas cheer as a profits upgrade put the UK’s biggest retailer on solid footing as it entered the all-important golden quarter.
Shares shot up 4.5% today to a near-12-year high of 449.2p as markets lapped up a bullish statement by CEO Ken Murphy asserting that the supermarket had built on already strong momentum in the first half to 23 August.
Revenues increased 5.1% to £33.1bn in the half and like-for-like food sales in the UK jumped by 5.7% as the chain benefited from inflated prices and made volume-driven share gains, pushing its hold on the market to more than 28% at the expense of Asda and Morrisons.
A 6% drop in pre-tax profits of £1.3bn came in ahead of analyst expectations and Tesco raised full-year operating profit guidance to between £2.9bn and £3.1bn, despite the company warning competitive intensity remained elevated.
Earlier in the year, Murphy warned of a potential £400m hit to profits as the market leader braced itself for a price war with Allan Leighton’s Asda.
However, the strength of the Finest own label range – which grew by 16% in the first half – and the success of the Clubcard Prices scheme, alongside a strict focus on cost savings to bulk up its war chest, kept rivals at bay.
Tesco’s performance has led to its share price trading at 12-year highs as investors pile into the supermarket stock. It is up 20% so far this year and almost 70% over the past five years.
Read more: Tesco CEO Ken Murphy hits out at rivals’ ‘irrational’ price cuts
Eleanor Simpson-Gould, senior analyst at GlobalData, said Tesco was “thriving in a challenging and highly competitive landscape” and “setting the pace” for the UK grocery market.
“If it maintains this momentum, it will secure further market share gains in the second half of the year,” she added. “As Tesco enters the golden quarter, it does so on a solid footing.”
Russ Mould, investment director at AJ Bell, said Tesco’s position at the top of the UK supermarket pecking order looked “more entrenched than ever” after the latest set of results.
“The company has sacrificed a little on margins to help maintain competitiveness, but this has paid off in spades as it has continued to win share from an already dominant market position. This is an impressive feat, particularly given Asda briefly threatened a price war earlier this year and the German discounters Aldi and Lidl continue to show ambition.”
Mould added a double-digit dividends increase was a clear sign of how confident the business was feeling as Murphy continued to build on the progress made by his predecessor Dave Lewis.
Clive Black of Shore Capital said Tesco had outperformed the broker’s market share expectations throughout the decade as Murphy sustained and evolved the core value proposition and operational excellence discipline created by Lewis. “Such a high level of execution for so long is not an easy feat,” he added.
“Equally, in the face of elevated competitive tension from Asda, in particular in the January to March 2025 period, Tesco tweaked its gross margin screw and so stood up to the plate, stifling potential switching loss to Asda, which, as autumn takes hold, is still losing share. Remarkably, from a high base, Tesco UK is still gaining.”
No comments yet