6th Oct 2021 08:06
(Alliance News) - Tesco PLC on Wednesday lifted its annual outlook and set out plans for a GBP500 million buyback as the grocer reported profit more than doubled in its first half.
Shares in the supermarket chain were up 3.9% at 262.95 pence in London early Wednesday, the best performer in the FTSE 100.
Sales climbed, with like-for-likes remaining above pre-pandemic levels, while Tesco reported it has seen significantly fewer Covid-19-related costs so far this financial year. As it looks to the second half of its year ending February, however, the company expects sales growth to ebb.
Revenue in the six months to August 31 rose 5.9% year-on-year to GBP30.42 billion, from GBP28.72 billion. The figure includes fuel but does not factor in value-added tax.
With both fuel and VAT excluded, group sales were 2.6% higher at GBP27.33 billion, from GBP26.65 billion a year earlier. Constant currency sales growth was 3.0%.
Tesco's pretax profit more than doubled to GBP1.14 billion from GBP551 million. Adjusted retail operating profit rose to GBP1.39 billion from GBP1.19 billion a year before.
Sales growth helped the profit jump, but a reduction in Covid-19 costs also boosted the company's bottom line.
"In the UK, we continue to incur Covid-19 related costs, which totalled GBP122 million in the first half - significantly less than the GBP533 million costs incurred in the first half of last year. This year's costs primarily related to colleague absence, maintaining a safe environment in stores for colleagues and customers and additional costs in relation to elevated online sales," Tesco explained.
It expects around GBP220 million in Covid-19 related costs for the full-year, down three-quarters from the GBP892 million it suffered in its UK arm in the previous financial year.
Like-for-like sales were 2.3% higher year-on-year in the first half and are 8.4% higher than two years prior, suggesting that even as Covid-19 curbs have eased, more consumers are eating meals at home.
Chief Executive Ken Murphy said: "We've had a strong six months; sales and profit have grown ahead of expectations, and we've outperformed the market.
"With various different challenges currently affecting the industry, the resilience of our supply chain and the depth of our supplier partnerships has once again been shown to be a key asset."
The interim performance led the grocer to upgrade its outlook. Tesco now expects full-year adjusted retail operating profit between GBP2.5 billion and GBP2.6 billion. This would be higher than the GBP1.99 billion achieved last year, as well as above the GBP2.33 billion posted for the pandemic-free 2020 financial year.
The outlook for the second half did have an uncertain tone, however.
"Although we do not yet know how the external environment and consumer behaviour will evolve in the second half, we have assumed that some of the elevated sales fall away and that we will continue to invest in our customer offer," Tesco said.
The grocery sector has faced supply chain issues as well as a shortage of drivers of heavy goods vehicles.
Looking further out, Tesco noted its multi-year performance framework plan. It targets at the very least maintaining its UK market share and eyes accessing new revenue streams across its digital offerings.
Plans would mean retail free cash flow would stand at between GBP1.4 billion to GBP1.8 billion per year.
For the year which ended on February 27, 2021, retail free cash flow stood at GBP1.19 billion, down 30% from GBP1.69 billion a year earlier.
As well as upping annual guidance, the supermarket chain unveiled an ongoing share buyback programme, worth GBP500 million in its first tranche which will be carried out until October next year.
The interim dividend was held steady at 3.20p. It confirmed plans for a progressive payout, however.
"We will aim to grow the dividend per share each year, broadly targeting a pay-out of around 50% of earnings," the company explained.
By Eric Cunha; [email protected]
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