There is an awful lot to like about Tesco’s half-year update. The company is growing revenues, winning market share and importantly, increasing operating margins.
Investors will also be delighted with the 15% increase in operating profit for the period.
UK & ROI adjusted operating margins were 4.7% compared to 4.2% for the last full year period. The increase in operating margins is interesting, given the supermarket is locked in a bitter price war with the discounters to win over cost-conscious consumers.
“We have lowered prices on thousands of lines, launched or improved over 860 products in partnership with our suppliers and growers, and our customer satisfaction scores continue to improve across a broad range of measures,” said Ken Murphy, Chief Executive.
“The combination of price, quality and innovation means we are as competitive as we have ever been, and we have been the cheapest full-line grocer for nearly two years.”
Action on pricing has resulted in Tesco growing its market share and cementing its place as the UK’s leading supermarket. Tesco’s market share hit 27.8% in the period, Tesco’s highest market share level since January 2022.
“Tesco’s excellent 2024 performance is reflected in this morning’s results as the UK’s largest supermarket reported a further increase in profits as their shares surged to an eleven-year high,” said Mark Crouch, market analyst at investment platform eToro.
“Throughout a period in which supermarkets have faced a whole host of headwinds, from a global pandemic to high inflation and a cost-of-living crisis, Tesco has not only maintained their market share but increased it to the highest point in almost three years. And despite the rise of budget supermarket chains, who have managed to wrestle away market share from other big names in the sector, Tesco has not been one of them.
“There are several reasons for this. Food sales growth has been an area where Tesco is rarely beaten, offering a larger and wider variety of products to their customers. Price-matching and Tesco’s Club Card loyalty program, which has grown to over 22 million members and counting, have also been a resounding success.”
Tesco shares were 2% higher at the time of writing.