Supermarket giant Tesco has today upgraded its profit outlook for the second time in four months as it reported a better-than-expected rise in underlying UK sales for the key Christmas trading period, buoyed by demand for fresh food.
The company also said it had "great momentum" going into 2024.
CEO Ken Murphy told reporters he was "cautiously optimistic" about the health of the UK consumer, noting mortgage rates were starting to fall, fuel prices were deflating and strong growth in wage rates.
"So as long as we are in a full employment market I feel like we're in a period of relative stability," he said.
Tesco said it sold over 1 million fresh whole turkeys, turkey crowns and joints, over 57 million mince pies and 6.6 million bottles of Prosecco over the Christmas period.
"(Consumers) were really determined to enjoy Christmas and they came out in force, they were really pleased to see that the rate of inflation continues to fall in food," CEO Ken Murphy said.
Tesco said it had also benefited from strong demand for its premium ranges, and the popularity of its loyalty scheme.
As a result it said it now expected retail adjusted operating profit, its key profit figure, to hit £2.75 billion in the year to the end of February 2024, up from £2.49 billion last year. It had previously forecast £2.6-2.7 billion.
Trading updates from retailers and industry data have shown that shoppers prioritised spending on food over Christmas rather than more discretionary general merchandise, reflecting the tight economic condition.
Tesco said its Irish sales rose by 8.3% in the third quarter, while they rose by 5.5% over the Christmas period after what it called a "particularly strong performance" in fresh food driven by consistently strong volumes.
Tesco Ireland reported sales of €1.3 billion in the 19 weeks to January 6, up 7.5% year on year.
During the period under review, 21 stores in Ireland saw "extensive refresh", including new and improved fresh produce and bakery areas and new innovations across the store including coffee, hot food & food-on-the-go.
"I am delighted with the very strong performance of the business during Q3 and the festive trading period," said Natasha Adams, CEO of Tesco Ireland.
"Over the last 19 weeks we saw very strong growth in our fresh food and packaged categories, and over the Christmas period our seasonal lines outperformed expectations.
"Our ongoing investment in opening new stores, as well as our extensive store refresh programme, contributed to growth in key food categories," she added.
Ms Adams said Tesco Ireland continues to see consistent growth in its online grocery home shopping service.
Today's figures show the retailer's UK like-for-like sales rose 6.8% over the six weeks to January 6, ahead of analyst forecasts of about 5%, and were up 7.9% in its third quarter to November 25, having been up 8.4% in the second quarter.
Like smaller rival Sainsbury's, which reported strong food sales yesterday, Tesco is benefiting from a strategy of matching the prices of discounter Aldi on key items.
It is also being helped by the popularity of its Clubcard loyalty scheme, which provides lower prices for members.
These programmes are being financed by a plan to take £1.1 billion of costs out of the business in the two years to February 2024.
Tesco has also benefited from consumers looking to save money by cooking and entertaining at home rather than dining out, with sales of its "Finest" premium range soaring 17%.
CEO Murphy anticipated "minimal impact" on Tesco from disruption to shipping in the Red Sea, noting non-food products represent just 7% of total sales.
Separately today, clothing and food retailer Marks and Spencer reported a better than expected 8.1% rise in sales over the Christmas trading period.
