10th Apr 2025 09:36
(Alliance News) - Tesco PLC on Thursday predicted pretax profit will fall in the financial year ahead as it grapples with intensifying competition among UK food retailers.
The Welwyn Garden City-based grocer expects adjusted operating profit of between GBP2.7 billion and GBP3.0 billion in the current financial year, down from GBP3.13 billion in the year just ended.
Citigroup analyst Monique Pollard said that, at the mid-point, Tesco's new guidance was 9% below market consensus.
In response, shares in Tesco fell 5.5% to 313.27 pence each in London on Thursday morning, while industry peer J Sainsbury was 4.2% lower at 225.80p each. By contrast, the wider FTSE 100 index was 4.1% higher, following the pause in US tariffs.
Tesco said the guidance "gives us flexibility and firepower to be able to respond to current market conditions", noting it has seen "a further increase in the competitive intensity of the UK market", in the last few months.
Chief Executive Ken Murphy said: "We are setting ourselves up for the year ahead with the flexibility to continue to win in a highly competitive market."
The retailer pledged to ensure that customers "get the best value in the market", and said it sees "further opportunities to protect and strengthen our competitiveness".
Tesco shares have come under pressure in recent weeks amid fears Asda could launch a price war.
This comes after returning Asda boss Allan Leighton laid out plans from the Leeds-based firm to reclaim market share by aggressively focusing on lower prices in order to win back shoppers.
The cautious outlook came as Tesco reported strong annual results.
Group adjusted operating profit climbed 11% to GBP3.13 billion in the 52 weeks to February 22 from GBP2.83 billion a year prior. Of this, retail adjusted operating profit rose 7.7% to GBP2.97 billion from GBP2.76 billion, ahead of the company-compiled consensus of GBP2.9 billion.
Pretax profit fell 3.2% to GBP2.22 billion from GBP2.29 billion and diluted earnings per share by 5.7% to 23.13p from 24.53p.
Group like-for-like sales increased 3.1%, including UK up 4.0%, Republic of Ireland up 4.6%, and Continental Europe up 2.2%.
Like-for-like sales by wholesaler Booker fell 1.8%, reflecting growth in core retail and catering, offset by ongoing decline in tobacco market and lower Best Food Logistics volumes.
Also like-for-like, food sales grew by 4.9% and clothing sales by 3.0%. Large store sales grew by 4.1% like-for-like, but convenience sales declined by 0.2%, Tesco Express sales were broadly flat like-for-like, while online sales grew by 10%.
UK market share rose 67 basis points year-on-year to 28.3%, Tesco said, reaching its highest level since 2016 during the year.
"Our investments over the last four years have resulted in the most competitive position and highest market share we have had for many years, leading to a strong financial position and positive trading momentum," the company said.
Tesco reported free cash flow of GBP1.75 billion compared with GBP2.06 billion last year, with the prior year benefiting from higher trade working capital balances, driven by elevated levels of input cost inflation.
Tesco said its 'save to invest' progress, delivered around GBP510 million of savings in the financial year. The grocer plans to extend the programme and seek a further GBP500 million of savings in the new financial year to help offset new operating cost inflation, including the impact of an increase in national insurance contributions of GBP235 million.
The annual dividend was increased by 13% to 13.70p from 12.10p, including a final payout of 9.45p.
In addition, Tesco announced plans to buy back up to GBP1.45 billion worth of shares by April next year. The programme will be run by Citigroup Global Markets Ltd.
The first tranche will be for up to GBP700 million.
By Jeremy Cutler, Alliance News reporter
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