UK’s Tesco forecasts profit rise as consumer sentiment improves

UK’s Tesco forecasts profit rise as consumer sentiment improves

By James Davey

LONDON (Reuters) -Britain’s biggest retailer Tesco forecast a further rise in profit on Wednesday, citing early signs of improving consumer sentiment, after customer wins from rivals helped drive an 11% jump last year.

CEO Ken Murphy said easing food inflation, lower energy prices and employment levels holding up made him “quite positive” for 2024.

“There is loads of uncertainty out there, but I see a gentle improvement in customer sentiment, and our business is in really good shape,” he told reporters on Wednesday.

His comments chimed with recent survey data showing signs Britain’s two-year cost of living crisis is easing, with confidence improving among UK consumers about the outlook for their finances and the number struggling to pay their bills down year-on-year.

The supermarket group, which has a 27.3% share of Britain’s grocery market, up 40 basis points on the year, forecast retail adjusted operating profit, its key profit measure, of “at least” 2.8 billion pounds ($3.55 billion) for its 2024/25 year.

It made 2.76 billion pounds in the year to Feb. 24, 2024, slightly ahead of guidance of 2.75 billion pounds and up from 2.49 billion pounds in the previous year.

Sales, excluding VAT sales tax and fuel, rose 7.4% to 61.5 billion pounds, with UK like-for-like sales up 7.7%, supported by a rise in volumes, or number of items sold, in the second half.

Tesco’s shares were up 3.8%, extending year-on-year gains to 12%.

“Customers are choosing to shop more at Tesco, which is reflected in growing market share as they respond to the improvements we’ve made to the value and quality of our products,” said Murphy.

He highlighted customer wins from premium retailers, with sales of the Tesco Finest brand up 15.7% during the year, exceeding 2 billion pounds.

UK consumers were still looking to save money by cooking and entertaining at home rather than dining out, he said.

Tesco was also benefiting from its strategy of matching the prices of discounter Aldi on key items, and the popularity of its Clubcard loyalty scheme, which provides lower prices for members.

These programmes have been financed by taking 1.2 billion pounds of costs out of the business over the past two years. A further 500 million pounds of savings are planned for 2024/25.

Tesco raised its dividend by 11% and said it would buy back a further 1 billion pounds’ worth of shares over the next year.

“If they can keep the business well-invested and return the rest of the cash to shareholders, that seems a very sensible thing to do,” said one top 40 investor in Tesco.

($1 = 0.7890 pounds)

(Reporting by James Davey; Editing by Kate Holton and Jan Harvey)