Tesco defies supply chain challenges to lift profit forecast

FAN Editor
FILE PHOTO: A logo of Tesco is pictured outside a Tesco supermarket in Hatfield
FILE PHOTO: A logo of Tesco is pictured outside a Tesco supermarket in Hatfield, Britain October 6, 2020. REUTERS/Peter Cziborra/File Photo GLOBAL BUSINESS WEEK AHEAD

October 6, 2021

By James Davey

LONDON (Reuters) -Tesco, Britain’s biggest retailer, raised its full-year earnings forecast on Wednesday after the unmatched scale of its store and online operations helped it outperform rivals in the first half and deliver a better-than-expected 16.6% increase in profit.

British retailers are battling supply chain disruptions and labour shortages. Supermarkets also face tough comparisons against record sales during COVID-19 lockdowns.

Tesco, however, increased sales in the period.

“We’ve had a strong six months; sales and profit have grown ahead of expectations, and we’ve outperformed the market,” said Chief Executive Ken Murphy.

“With various different challenges currently affecting the industry, the resilience of our supply chain and the depth of our supplier partnerships has once again been shown to be a key asset.”

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

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

Tesco forecast a full-year adjusted retail operating profit of 2.5-2.6 6 billion pounds, having previously forecast a similar outcome to 2019-20, when it made 2.3 billion pounds.

The company, with a 27% share of Britain’s grocery market, said it made an adjusted retail operating profit of 1.39 billion pounds in the first half – ahead of analysts’ average forecast of 1.26 billion pounds and 1.19 billion a year earlier.

Group sales rose 2.6% to 27.3 billion pounds, while UK like-for-like sales climbed 1.2%, having risen 0.5% in the first quarter.

Recent industry data has shown Tesco outperforming its main rivals – Sainsbury’s, Asda and Morrisons.

Analysts say Tesco is benefiting from its huge online business, its strategy to match prices at German-owned discounter Aldi on around 650 lines and the success of its ‘Clubcard Prices’ loyalty scheme.

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

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

Morrisons, which is being taken over by U.S. private equity group Clayton, Dubilier & Rice, is up 61%, while Sainsbury’s, also buoyed by takeover speculation, is up 33.5%.

Tesco is paying an interim dividend of 3.2 pence, in line with the prior year.

($1 = 0.7351 pounds)

(Reporting by James DaveyEditing by Paul Sandle and Mark Potter)

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