Supermarket surge

Tesco profits soar amid easing price pressures

Tesco worker
Tesco is continuing grow in a competitive market

Profits have rocketed at Tesco despite price cutting in a hard-fought battle for customers among the supermarket rivals.

The UK’s biggest supermarket chain posted a 12.8% rise in adjusted operating profit while statutory pre-tax profit rose by almost 160% to £2.3 billion from £882m. Sales rose by 4.4% to £68.2bn.

The company said price inflation in groceries had “lessened substantially”. It now expects to generate at least £2.8bn of retail adjusted operating profit in the current fiscal year. That’s ahead of the £2.76bn last year which was in line with previous guidance.

The company said it has cut the prices of more than 4,000 products over the year with average reductions of 12%. 

Tesco also announced plans to buy back £1bn of shares over the next 12 months.

There is a proposed final dividend of 8.25p, making a full year payout of 12.1p, up 11.0% year-on-year.

Tesco shares are up more than 7% in the past year.

As food price inflation starts to ease, supermarkets are trying to keep prices as low as possible to retain shoppers hunting around for cheaper alternatives. Tesco has been competing with Aldi by price matching on many key products.

UK Grocery prices fell to 4.5% in the four weeks to 17 March — its lowest level since February 2022, according to data from Kantar last month. That comes after an almost 10% minimum wage increase to £11.44 an hour came into effect last week.

Chief executive Ken Murphy said: “Inflationary pressures have lessened substantially, however we are conscious that things are still difficult for many customers, so we have worked hard to reduce prices.

“We have continued to invest in helping customers where it matters most, cutting prices on more than 4,000 products.

“We have strong momentum in our business, and are encouraged by signs of improving consumer sentiment. We’re excited about the opportunities ahead, with the right plans to keep winning with customers, as well as a great team to deliver them.”

Tesco Bank

The company said the sale of most of the Edinburgh-based Tesco Bank operations is expected to complete in the second half of this year, generating c.£700m cash (net of transaction costs).

Tesco Bank adjusted operating profit for the year was £148m, in line with guidance; including £69m from retained business (insurance and money services).

The retained Tesco Bank business is expected to generate £80m to £100m adjusted operating profit, including income from partnership with Barclays, enabling Tesco to offer branded financial products and services.

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