Tesco shares fell on Thursday after the supermarket said profits are likely to fall in the year ahead, despite enjoying strong growth over the past year.
The impact of increased competition will erode Tesco’s profits, which are now expected to decline as much as 10% in the current financial year.
Tesco shares were down 4% at the time of writing, which wouldn’t be considered that bad if the FTSE 100 wasn’t up 6%.
“Despite holding the largest share of the grocery market for over a decade, Tesco has issued guidance for lower profit next year than those just reported,” said Adam Vettese, market analyst at eToro.
“This reflects how seriously they are taking the threat of a supermarket price war following Asda’s move to sacrifice profits for a discounting campaign.”
Tesco released preliminary results for the financial year 2024/25 on Thursday, revealing adjusted operating profit surged 10.9% at constant rates to £3,128 million.
The retail giant’s robust performance was driven by volume growth and successful cost-saving initiatives across its markets.
The supermarket chain reported like-for-like sales growth of 3.1%. with the UK market driving 4.0%. Republic of Ireland operations delivered an even more impressive 4.6% growth, while Central Europe contributed 2.2% to the overall performance. Booker, however, experienced a slight decline of 1.8%, reflecting the ongoing downturn in the tobacco market and reduced volumes in Best Food Logistics, despite growth in its core retail and catering segments.
“Our investments over the last four years have resulted in the most competitive position and highest market share we have had for many years,” Tesco said in its report.
The company’s UK market share increased by 67 basis points year-on-year to 28.3%, marking 21 consecutive four-week periods of share gains and reaching its highest level since 2016.
Tesco’s core UK and Republic of Ireland operations saw adjusted operating profit climb 10.3% to £3,016 million, bolstered by strong volume performance and savings from the company’s “Save to Invest” programme.
Although Central Europe is still a small part of Tesco’s business, its proving to be a great source of growth with adjusted operating profit surging 28.9% to £112 million.
Tesco’s focus on its product range and customer experience is evident in the numbers. The company launched over 1,000 new products and improved more than 600 existing ones during the year, and sales of its premium ‘Finest’ range jumped 15% to £2.5 billion.
However, for all the progress it made in 2024/25, investors only really care about the future, and that doesn’t look so good.
Tesco pointed to increased competition and said it expects adjusted operating profit of between £2.7 billion and £3.0 billion this, down from the £3,128 million achieved in 2024/25.
This is a big disappointment, and Tesco shares sank as a result.