Tesco Lifts Guidance on Robust Volume Growth — Update

By Michael Susin

Tesco raised its profit guidance for fiscal 2025 after price cuts boosted sales volumes in the first half.

The U.K.'s biggest grocer has been cutting prices across a range of products in a bid to lure shoppers to its stores. The company said volume growth exceeded its expectations, paving the way for an increase to its profit outlook for the year ending in February 2025.

Tesco on Thursday said that it expects retail adjusted operating profit--the company's preferred metric, which strips out exceptional and other one-off items--in fiscal 2025 of around 2.9 billion pounds ($3.85 billion) compared with the previous target of at least 2.8 billion pounds. This compares with consensus expectations of 2.94 billion pounds, according to a company poll of 14 analysts.

Retail adjusted operating profit was 1.55 billion pounds in the six months to Aug. 24, rising 10% at constant currency. This beat expectations of 1.53 billion pounds, according to estimates provided by LSEG Refinitiv.

Shares rose 1.3% in morning trade in Europe.

Tesco reported a first-half pretax profit of 1.39 billion pounds compared with 1.16 billion pounds in the same period a year earlier.

Revenue rose to 34.77 billion pounds from 33.80 billion pounds, which compares with expectations of 34.74 billion pounds, according to LSEG Refinitiv data.

The company attributed the increase to better-than-expected volume growth, with comparable retail sales up 2.9%. Like-for-like sales grew 4.0% in Tesco's core U.K. market, driven by strong performances across physical stores and online, it said.

Tesco said it expects a higher profit contribution from the banking business it will keep after a sale of most of the operations of Tesco Bank to Barclays. It expects an adjusted operating profit contribution from the retained Tesco Bank business of around 120 million pounds for the full year, up from the previous figure of 80 million pounds.

The sale of the banking operations is due to be completed before the end of the year, with capital mainly returned to shareholders through share buybacks, it added.

The company's retail cash-flow target remains in the 1.4 billion to 1.8 billion pounds range.

The board declared an interim dividend of 4.25 pence a share, up from 3.85 pence a share a year earlier, against expectations of 4.24 pence a share, according to LSEG Refinitiv.

Write to Michael Susin at michael.susin@wsj.com

(END) Dow Jones Newswires

October 03, 2024 04:11 ET (08:11 GMT)

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