Tesco defies supply chain challenges to meet profit forecast

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A Tesco logo is pictured outside a Tesco supermarket in Hatfield, Britain on October 6, 2020. REUTERS / Peter Cziborra / File Photo GLOBAL BUSINESS WEEK AHEAD

  • Retail core profit up 16.6% in the first half
  • Projected full-year retail profit of 2.5-2.6 billion stg
  • Launches a 500 million stg share buyback
  • Stocks increase by 5%

LONDON, Oct.6 (Reuters) – Tesco, the UK’s largest retailer, on Wednesday raised its full-year profit forecast after the unparalleled scale of its store and online operations helped it to outperform its competitors in the first half of the year and deliver a better-than-expected 16.6% profit increase.

UK retailers are battling supply chain disruptions and labor shortages. Supermarkets also face difficult comparisons with record sales during COVID-19 shutdowns.

Tesco (TSCO.L), however, increased its sales during the period.

“We had an excellent semester; sales and profits increased beyond expectations and we outperformed the market, ”said Managing Director Ken Murphy.

“With various different challenges currently affecting the industry, the resilience of our supply chain and the depth of our partnerships with our suppliers has once again proven to be a key asset. “

The group said on Wednesday that the strong performance had enabled it to reduce its net debt by 1.7 billion pounds ($ 2.3 billion) since February, and that it could therefore afford to buy back shares, the first 500 million pounds to be purchased by October 2022.

Its shares rose 5% in early trades, topping the FTSE 100 index.

Tesco forecast full-year adjusted retail operating profit of £ 2.5-2.6 billion, after previously forecasting a similar result to 2019-20, where it achieved 2, 3 billion pounds.

The company, with a 27% share of the UK grocery market, said it achieved first-half adjusted operating profit of £ 1.39 billion – ahead of analysts’ average forecast of 1.26 billion pounds and from 1.19 billion a year earlier.

Group sales rose 2.6% to 27.3 billion pounds, while like-for-like sales in the UK rose 1.2%, after increasing 0.5% in the first quarter. Read more

Recent industry data has shown Tesco to outperform its main rivals – Sainsbury’s (SBRY.L), Asda and Morrisons (MRW.L). Read more

Analysts say Tesco is capitalizing on its huge online business, its strategy to match the prices of German discount Aldi on around 650 lines and the success of its “Clubcard Prizes” loyalty program.

However, Tesco chairman John Allan told ITV last month that the disruption in the supply chain meant food prices in Britain could rise 5% this winter.

Tesco’s share price has climbed around 14.6% this year, but has underperformed both Sainsbury’s and Morrisons.

Morrisons, which is acquired by US private equity firm Clayton, Dubilier & Rice, is up 61%, while Sainsbury’s, also buoyed by buyout speculation, is up 33.5%.

Read more

Tesco pays an interim dividend of 3.2 pence, in line with the previous year.

($ 1 = 0.7351 pounds)

Reporting by James Davey Editing by Paul Sandle and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.


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