Tesco helped power the stock market to new record highs today as it said “better than expected” response to price cutting and warm summer weather had boosted profit expectations.
Britain’s biggest retailer said it now expected operating profit for the full year of between £2.9 billion and £3.1 billion, higher than the previous guidance range of between £2.7 billion and £3 billion.
The upbeat comments sent the shares rising more than 2% as the FTSE 100 surged to yet another all-time high, up 20 points to 9,475.07 before dropping back.
They also suggest Tesco believes it has seen off the competitive threat from a revitalised Asda under the leadership of veteran boss Allan Leighton.
In April Tesco warned profits could be as much as £400 million lower as it braced for a price war with its rival. However today Tesco said that while “competitive intensity remains elevated” in the first half, “a better-than-expected customer response to our actions and the benefit of an extended period of good weather have helped offset the cost of our investments.”
The supermarket giant reported first half sales up 5.1% at £33.1 billion and operating profits just 1.5% higher at £1.67 billion. UK and Ireland profits were up 2.1% and Tesco’s UK market share rose more than three quarters of a percentage point to 28.4%.
Chief executive Ken Murphy, said:"I am pleased with our first half performance, which builds on already strong momentum. Our market share gains in the UK are a particular highlight and reflect the decisive action we took at the start of the year to further invest in value, quality and service.
“The extension of our savings programme is helping offset new operating cost inflation, including increased National Insurance and other regulatory costs. Sales have grown across all our businesses, with customer satisfaction scores improving once again.”
Victoria Scholar, head of investment, at interactive investor said: “Tesco benefitted from the good weather over the summer, helping to offset pressures from price cut pledges at Asda. The group’s sheer scale feeds its appetite for lowering prices for customers through the likes of Aldi Price Match, Low Everyday Prices and Clubcard Prices, while a strong focus on significant cost reduction creates something of a virtuous circle.
“Tesco has also benefitted from people dining in more than eating out amid cost-of-living pressures and CEO Ken Murphy said he is betting on a ‘good Christmas’ despite intense price competition.”
Derren Nathan, head of equity research, at investment platform Hargreaves Lansdown said:“Tesco’s stores and vans have delivered a little extra in the first half. Underlying operating profit of £1.7 billion came in a shade ahead of market forecasts, but intensified competition and cost pressures meant that growth in profits lagged sales by some margin. Still, management were confident enough to raise the mid-point of full-year profit guidance by 5% to £3 billion. It’s not a spectacular change, but every little helps.
