Tesco sales climb after discounting

By Louis Goss

Tesco on Wednesday posted an almost 9% uptick in sales following a successful push to poach customers from more expensive rivals.

The supermarket chain saw its sales surge 8.9% year-on-year to GBP30.75 billion ($37.28 billion) for the Aug. 26-ending first half as it cut prices in a bid to secure its position as Britain's cheapest full-line grocer.

Tesco, in turn, held its dividend payouts to shareholders at rates of 3.85p per share, even as the higher sales saw the shop chain's adjusted operating profits increase 14% to GBP1.5 billion.

The first half results saw Tesco adjust its outlook upwards in forecasting it will generate profits of between GBP2.6billion and GBP2.7billion for the year. According to Tesco, 11 analysts on average were forecasting adjusted operating profits of GBP2.7 billion on sales of GBP68.5 billion.

Shares in Tesco (UK:TSCO) jumped 3% in trading on Wednesday, having risen more than 27% over the previous year.

The sales surge came as the Hertfordshire-based company cut prices on around 2,500 products, from bread to broccoli, offering customers average savings of 12%.

The lower prices in turn saw customers continue to switch over from premium grocers, as Tesco also bolstered its high quality Finest range with the addition of more than 150 new products.

Tesco CEO Ken Murphy told investors that customers were opting to save money by making food themselves instead of eating out at restaurants.

"The enormous investment Tesco's put into being more affordable has also helped retain and attract customers while inflation's been running so hot," said Hargreaves Lansdown analyst Sophie Lund Yates.

The Hargreaves Lansdown analyst, however, argued Tesco's business faces the biggest threat from budget retailers Lidl and Aldi, as she warned of a looming "race to the bottom" on prices over Christmas.

Tesco's U.K. business saw the strongest growth, as the firm posted a 10.6% uptick in food sales across its British stores.

The company, which opened its first shop in London's east end in 1919, also posted a 6.9% uptick in sales in the Republic of Ireland, as it benefited from the opening of new stores.

The firm's central European operations in Hungary, Slovakia, and Czech Republic, were however hit by high inflation, particularly in Hungary.

A combination of high commodity prices, inflationary pressures, and government measures including price caps in Hungary, saw Tesco's central European business grow by just 0.9%.

Hungary saw consumer prices increase by 16.4% in the year ending in August 2023, the country's national statistics office said, which is faster than the 6.7% growth in U.K. prices and 5.8% rise in Ireland.

-Louis Goss

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-04-23 0712ET

Copyright (c) 2023 Dow Jones & Company, Inc.