By James Davey

LONDON, Jan 8 (Reuters) - Tesco, Britain's biggest food retailer, on Thursday forecast full-year profit at the upper end of its guidance as it reported a 3.2% rise in underlying UK sales for the key Christmas trading period, winning market share from rivals.

The group said it now expected adjusted operating profit at the upper end of the 2.9 billion pounds to 3.1 billion pounds ($3.9 - $4.2 billion) range it forecast in October. It made 3.13 billion pounds in 2024/25.

Tesco's update showed it had continued to outperform the wider UK retail market with a focus on value at a time of subdued consumer confidence, still high inflation and weakening employment.

However, its performance was a little below analysts' consensus expectations.

Under Ken Murphy, chief executive since 2020, the group is also benefiting from a strategy to improve the quality of its products, increase innovation and enhance customer service.

Industry data published on Tuesday showed Tesco ended 2025 with a UK grocery market share of 28.7%, up 20 basis points on the year and its highest level since March 2015.

Tesco said third quarter to November 22 UK like-for-like sales rose 3.9% having been up 4.6% in its second quarter. Growth then slowed to 3.2% in the six weeks to January 3.

Shares in Tesco have increased 22% over the last year.

"Our investments in value, quality and service drove further gains in customer satisfaction and strong growth in fresh food, contributing to our highest UK market share in over a decade," said Murphy.

"Competition is as intense as ever and we know value remains a priority for customers," he said.

Analysts say Tesco's strategy of matching the prices of discounter Aldi on over 650 items, together its Clubcard loyalty scheme, which provides lower prices for members, is driving growth.

On Monday, Tesco said it was locking the prices of over 3,000 branded products, including Weetabix cereal, Heinz baked beans and PG Tips teabags.

(Reporting by James Davey; Editing by Kate Holton and Paul Sandle)