Tesco, Britain's biggest food retailer, warned today that its profit would likely fall this year, reflecting a further increase in the "competitive intensity" of the UK market.
The group, which has a near 28% share of Britain's grocery market, said it expected to make group adjusted operating profit of between £2.7 billion and £3 billion for its year to February 2026, compared to the £3.128 billion made in 2024/25.
Prior to the update, analysts had on average been forecasting £3.2 billion.
Tesco said its guidance gave it "flexibility and firepower to be able to respond to current market conditions."
Asda, Britain's third largest grocer, said last month it would take a hit to profit to finance a major campaign of price cuts - a move which contributed to Tesco's shares falling 11% over the last month.
"We are committed to ensuring that customers get the best value in the market by shopping at Tesco and we see further opportunities to protect and strengthen our competitiveness," the company said.
Analysts doubt Asda's move will spark a price war.
They say Tesco's strategy of matching the prices of discounter Aldi on key items, together with its Clubcard loyalty scheme, which provides lower prices for members, is working.
"Asda cannot compete with this and poses limited threat to Tesco," said analysts at Bernstein.
Tesco is also facing a jump in costs in 2025/26 due to increased social security payments imposed in the UK government's first budget last October, a hike in the national minimum wage and a new packaging levy.
The increase in employer national insurance payments will cost Tesco an additional £250m, while a 5.2% pay rise for store workers will cost £180m.
Tesco also announced a further share buyback totalling £1.45 billion to be completed by April 2026.
The group's sales rose 3.5% to £63.6 billion in 2024/25, with like-for-like sales up 3.1%.
Tesco said that its like for like sales in Ireland rose by 4.6% to £2,974 billion on the back of volume growth supported by the continued roll out of its "fresh first" store refresh programme and ongoing investments in product quality and innovation.
It said its total sales grew by 5.6% at constant rates.
Food like-for-like sales increased by 5%, driven by strong volume growth in fresh food. It noted that its "Finest" range performed well with year-on-year volume growth of over 29%.
Non-food like-for-like sales grew by 0.9%, while excluding toys, non-food like-for-like sales grew by 4%, with a strong contribution from Home driven by a refreshed proposition which has now been rolled out across 30 stores.
Tesco said it had gained market share in Ireland for 37 consecutive four-week periods, taking its share to 23.9% at the end of the year.
Meanwhile, Clubcard sales penetration stepped up by a further 2ppts year-on-year to 87%.
During the year, the company said it opened 90 stores across the group - 12 in Ireland, 64 in the UK and 14 in Central Europe.
