4th Oct 2023 10:32
(Alliance News) - Tesco PLC was the one to beat in the eyes of analysts on Wednesday after the supermarket upped its full-year profit outlook following a surge in interim profit.
"It seems Tesco's performing its own supermarket sweep, knocking competition out the way in the process and loading up on market share," commented Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
Tesco said its pretax profit jumped to GBP1.22 billion in the 26 weeks to August 26, from GBP396 million the year prior. Revenue climbed 5.0% to GBP34.15 billion from GBP32.52 billion.
The grocery chain reported strong sales across the group, with retail like-for-like sales rising 7.8%. Inflation eased over the period, Tesco said, also noting that volume and sales mix trends were ahead of expectations.
Russ Mould, investment director at AJ Bell, was impressed that Tesco was managing to stay ahead in the "cutthroat" grocery sector by offering low prices on core products and being "clever" with its loyalty scheme.
"By offering big discounts to those using its Clubcard, Tesco is able to successfully compete against Aldi and Lidl while also learning more about its customers' shopping habits, enabling it to tailor offers in the future," Mould said.
Hargreaves Lansdown's Sophie Lund-Yates pointed to the success of the Tesco Finest range as a further tailwind for the supermarket.
"People are saving by treating themselves at home instead of going out and Tesco has been building out its more premium offering. The wait to catch that extra demand is now paying off," she said.
"While cost-of-living pressures are easing in the grocery aisles, they're by no means gone and with Tesco's posher items growing in number, it's able to meet squeezed premium shoppers with open arms."
However, Lund-Yates cautioned that while Aldi and Lidl may not currently be an "existential threat" to Tesco, they were still nabbing shoppers from other bigger names.
"The real test will be Christmas, where consumers will want to put on as much of a feast as possible, but where wallets may not allow it. We could be faced with a race to the bottom on festive pricing, which could spell trouble for margins."
Looking ahead, Tesco said now expects to deliver between GBP2.6 billion and GBP2.7 billion retail adjusted operating profit for the financial year. Previously, Tesco said it has expected it to be "broadly flat level" at about GBP2.5 billion.
Analysts at Shore Capital upgraded its pretax profit forecast for Tesco by 3% on Wednesday but added if the supermarket's momentum can be sustained into a gradually improving UK consumer economic backdrop then more upgrades should follow.
"Tesco is a very well-oiled machine, pressing all the right buttons around price, assortment, promotion, availability, and general service standards. That consistent execution is being noticed by shoppers and supports robust market share performances," Shore said.
Shares in Tesco were up 3.3% at 268.10 pence on Wednesday morning in London.
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Tesco