Supermarket squeeze

Tesco posts profits surge but forecasts decline

Tesco sees a cost of living squeeze on profits

Tesco posted group adjusted operating profit of £2.8bn, up 58% and in line with the average analyst forecast, but cautioned profit was likely to fall in the current year in view of the cost of living squeeze on consumers.

The supermarket group, which has a 27% share of Britain’s grocery market, reported retail adjusted operating profit of £2.65 billion in the year to 26 February, slightly above guidance. Excluding the bank, profits for the retail business were up 35% to £2.6bn.

Revenues came to £54.8bn for the 52 weeks, up 2.5% on the year before.

For the 2022-23 year it forecasts retail adjusted operating profit of between £2.4bn and £2.6bn as inflation causes shoppers to cut back.

The company committed to another £750m share buyback by April 2023.

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Edinburgh-based Tesco Bank returned to profitability, posting a profit before tax from continuing operations of £188.5m (2021: loss of £154.9m).

Underlying profit before tax from continuing operations, which excludes items which are not reflective of ongoing trading performance, came in at £186.4m (2021: loss of £152.4m).

There is a proposed final dividend of 7.70p per share to take full year dividend to 10.90pps – up 19.1% YoY.

Market reaction

Zoe Gillespie, investment manager at Brewin Dolphin, said: “Tesco has delivered another strong set of results, with each part of the business performing well.

“The core supermarket continues to grow, its wholesale operation Booker has seen a strong recovery, its share of the online groceries market has improved, and even the bank has swung back to profit.

“Shareholders can also look forward to a substantial dividend increase and a buyback programme that should have a positive impact on the share price. The big uncertainty for Tesco, however, is inflation – which is the main reason behind the shares losing momentum since the start of the year.

“On that front, the supermarket has a tricky balancing act ahead between mitigating cost increases and protecting its customer base.

“Despite a 36% jump in annual profits last year, management expects profits to fall in 2022/23 given the uncertain outlook. But, Tesco has proven its ability to adeptly navigate tricky periods and few would be against it doing so again.”

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