Tesco Upgrades Guidance on Retail Earnings

Retail Adjusted Operating Profit for Fiscal 2024 Expected to Reach £2.6-£2.7 Billion

Tesco, the U.K. grocer, has announced an upgrade to its guidance on retail earnings following significant cost reductions. These reductions have resulted in a strong performance in the first half of the fiscal year, supported by easing inflation, improved volumes, and sales trends.

The company's preferred metric, retail adjusted operating profit, is now projected to be between £2.6 billion and £2.7 billion for fiscal 2024. This is an increase from the previous guidance of £2.49 billion. Additionally, the free cash flow target has been raised to between £1.8 billion and £2.0 billion for the year, compared to the previous range of £1.4 billion to £1.8 billion.

Continued Slowdown in Food Price Inflation

Tesco's upgraded guidance comes at a time of continued slowdown in food price inflation as cost pressures ease. The most recent report by NielsenIQ and the British Retail Consortium showed that prices in September fell for the fifth consecutive month.

For the six months ended August 26, Tesco reported a pretax profit of £1.22 billion, a significant increase from the £396 million reported during the same period last year. Revenue also rose from £32.52 billion to £34.15 billion.

Strong Performance in Retail Sales

Retail sales on a like-for-like basis saw an impressive increase of 7.8% as inflation fell during this period. Tesco attributes this growth to improved volume and sales mix trends that exceeded expectations.

"Food inflation fell across the half and while external pressures remain, we expect that it will continue to do so in the second half of the year," commented Chief Executive Ken Murphy on Wednesday.

The company has also made efforts to reduce prices on approximately 2,500 products, resulting in average savings of around 12% for consumers. Furthermore, Tesco is focusing on enhancing its own-branded product line.

"We're seeing the results at both ends of the basket, with strong growth in our Finest range as shoppers look to save by treating themselves at home, voting with their feet as they switch from premium retailers to Tesco," Murphy added.

Dividend Declaration and Share Performance

Tesco's board has declared an interim dividend of 3.85 pence per share, matching the amount declared in the previous year. As a result of these positive developments, the company's shares rose 7.3 pence or 2.8% to 266.9 pence as of 0815 GMT.