Tesco has today raised its annual profit forecast as the supermarket group won market share in its first half in the UK and Ireland, giving it momentum ahead of the key festive trading period.
The group said it now expected retail adjusted operating profit, its preferred profit measure, of "around" £2.9 billion for its 2024/25 year, up from a previous forecast of "at least" £2.8 billion. It made £2.76 billion in 2023/24.
Tesco, whose shares have risen 22% so far this year, is continuing to benefit from its strategy of matching the prices of discounter Aldi on hundreds of key items, and the popularity of its Clubcard loyalty scheme, which provides lower prices for members. These programmes are being financed by taking costs out of the business.
For the first half, Tesco's retail adjusted operating profit was £1.56 billion, up 10% on a constant currency basis.
Its UK like-for-like sales rose 3.5% in its second quarter, having been up 4.6% in the first quarter.
Tesco said its like-for-like sales grew in Ireland were up 4.7% to £1.449 billion in the half half of the year, which Tesco said was driven by ongoing investments in product quality and innovation.
It rolled out its "refresh" programme across another 11 stores and opened seven new stores around the country during the six month period.
Tesco said its food sales in Ireland grew by 5.4%, which it said includes a strong contribution from fresh food volume growth as it continues to invest in product quality and innovation across the range. Non-food sales in its Irish shops declined by 0.8%.
Tesco said it has now gained market share in Ireland for 31 consecutive four-week periods, taking its share to 23.5% at the end of the first half. It noted that Clubcard sales penetration stepped up by a further 5 points year-on-year to 85.3%.
"Our strong UK and ROI (Ireland) market share gains across the last year demonstrate our continued momentum," CEO Ken Murphy said.
"We are in good shape, with volume growth delivering strong financial performance," he added.
Geoff Byrne, Interim CEO of Tesco Ireland, said performance as a business had been strong in the first half, particularly in the fresh food space.
"We continued to invest in product quality and innovation and remain focused on providing value for our customers," he said.
"We’ve gained and retained customers in the half, which is reflected in our market share performance. The seven new stores opened in this half are all contributing to our growth."
Tesco betting on a happy Christmas
Tesco said it has stocked up and launched seasonal products in anticipation of strong Christmas demand despite survey findings that people feel cautious about spending.
Research has shown UK consumer confidence plunged following warnings from Prime Minister Keir Starmer about the weakness of the British economy and the likely need for tax increases in an October 30 Budget.
For big retailers, that has prompted fears about the Christmas trading period, traditionally the most lucrative of the year.
However, Tesco CEO Ken Murphy said the supermarket's data showed the UK consumer was resilient.
"We track customer sentiment every week and while they're not doing cartwheels down the hallways, they are in reasonably good shape," he told reporters today after Tesco raised its full-year profit forecast.
"You're seeing a stability in customer sentiment from a grocer point of view and also a willingness to spend a little bit more to treat themselves."
Murphy said this was reflected in Tesco's premium "Finest" range, whose sales volumes rose 15% in the first half.
"That's a real signal of a resilient customer sector," he said, and evidence that the trend of eating in, rather than dining out, continued.
He said he expected customer sentiment to improve ahead of Christmas, and that Tesco has launched 250 seasonal food and drink products.
"We are preparing for a good Christmas and we're betting on a good Christmas," he said.
"We're buying up in terms of our volumes - there's always an element of risk in that but we think we've got a very strong plan."
The boss of rival Sainsbury's told Reuters yesterday that discretionary markets remained difficult and that Britons would be reluctant to spend until the Labour government, in office since July, sets out its tax and spending plans, and interest rates fall further.
Murphy said Tesco had a relatively small non-food business, just 7% of its total sales, so was not overly exposed to big ticket items.
However, over the last few weeks Tesco had seen "fantastic growth" in its clothing business, he said, without giving numbers.
