Tesco reported higher sales and profit and increased its share buyback as Britain’s biggest supermarket maintained momentum amid cautious consumers.
The company said sales excluding fuel rose 2% to £33.8bn in the 26 weeks to 29 August, with adjusted operating profit up 6.3% to £1,783m at constant currency and free cash flow up 21% to £1,570m. Adjusted earnings per share rose 12%, and it lifted its interim dividend 5%.
It reported record customer satisfaction and was again named Britain’s favourite supermarket.
More importantly for shareholders, the market seems more than satisfied with the results and shares rose 3.6% in early trade on Thursday.
“Tesco is proving that Britain’s biggest supermarket doesn’t need spectacular sales growth to deliver impressive returns,” said Mark Crouch, etoro Market Analyst.
“The real achievement is turning relatively modest spending growth into stronger profits while keeping prices competitive in a market where shoppers scrutinise every pound. That takes considerable discipline, and an upgraded outlook alongside a £950 million buyback suggests management is increasingly confident in its ability to deliver.”
Growth was led by its UK food business, where like-for-like sales rose 2.4%, and by its digital channels: online sales grew 8%, while its Whoosh rapid-delivery service jumped 37% and is on track to top £500m of sales this year.
Tesco has also extended rapid delivery through tie-ups with Uber Eats and Deliveroo, and its premium Finest range grew 9%. Newer income streams, including its Tesco Media advertising business, also contributed.
On the strength of the half, Tesco narrowed its full-year guidance for adjusted operating profit to between £3.15bn and £3.30bn, from a previous range starting at £3.0bn, and increased its share buyback for the year to £950m from £750m.
“Management’s confident outlook suggests the business remains well positioned to deliver further growth in the second half of the year,” said Garry White, Chief Investment Commentator at Raymond James.