Tesco Lifts Views After Cost Cutting, Easing Inflation Boosts Performance — Update

By Michael Susin

Tesco upgraded its guidance on retail earnings after significant cost reductions resulted in a strong performance in the first half, supported by easing inflation, improved volumes and sales trends.

The U.K. grocer expects retail adjusted operating profit--the company's preferred metric, which strips one-off items--for fiscal 2024 between 2.6 billion pounds and 2.7 billion pounds ($3.14 billion-$3.26 billion), up from previous guidance of GBP2.49 billion.

The free cash flow target was raised to between GBP1.8 billion and GBP2.0 billion for the year, compared with a previous range of GBP1.4 billion-GBP1.8 billion.

Tesco's upgraded guidance comes amid a continued slowdown in food price inflation as costs pressures ease. The latest report by NielsenIQ and the British Retail Consortium showed that prices in September fell for the fifth consecutive month.

For the six months ended Aug. 26, Tesco reported pretax profit of GBP1.22 billion, compared with GBP396 million the same period a year earlier. Revenue rose to GBP34.15 billion from GBP32.52 billion.

Retail sales on a like-for-like basis were up 7.8% as inflation fell in the period, with volume and sales mix trends ahead of expectations.

"Food inflation fell across the half and while external pressures remain, we expect that it will continue to do so in the second half of the year," Chief Executive Ken Murphy said Wednesday.

Tesco said it had cut prices on around 2,500 products by the end of the first half, bringing average savings for consumers of around 12%, and that it is improving its own-branded products line.

"Customers are responding well, contributing to market share gains in store and online. We're seeing the results at both ends of the basket, with strong growth in our Finest range as shoppers look to save by treating themselves at home, voting with their feet as they switch from premium retailers to Tesco," Murphy said.

The board declared an interim dividend of 3.85 pence a share, same as a year earlier.

Shares at 0815 GMT were up 7.3 pence, or 2.8%, at 266.9 pence.

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

(END) Dow Jones Newswires

October 04, 2023 04:31 ET (08:31 GMT)

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