Tesco raises bottom of profit outlook after 6.5% first-half rise

Profit floor lifted after a 6.5% first-half rise

Tesco raised the bottom of its full-year profit forecast on Thursday after reporting adjusted operating profit of £1.783 billion ($2.35 billion) for the 26 weeks to 29 August, up 6.5%. Sales excluding VAT and fuel rose 2.0% to £33.8 billion. The group now expects adjusted operating profit of £3.15 billion to £3.3 billion for the year to end-February 2027, against previous guidance of £3.0 billion to £3.3 billion. Shares have risen 8% so far this year. The company also raised its share buyback programme for the current year from £750m to £950m, having bought back £550m since April. Net debt stood at just over £10bn at the end of the period, slightly down from £9.9bn a year earlier.

Volumes soften in a hot summer

UK like-for-like sales rose 1.5% in the half, after 1.8% in the first quarter. Tesco lost a little market share in the second quarter, according to monthly industry data. It was up against a strong comparison, with UK like-for-like sales up 4.6% in the same quarter last year, helped by disruption at Marks & Spencer, the Co-op and Asda. A very hot summer also weighed on sales volumes across the industry. The Middle East conflict and its effect on energy prices created uncertainty for many households during the first half. Booker, the wholesale arm, saw sales fall by between 2.5% and 2.6%, depending on the source.

Ireland, Clubcard and the AI assistant

Tesco's sales in Ireland rose 8.1% to £1.66bn (€1.9bn) in the first half, and its share of the Irish grocery market rose to 24.1%. Dunnes Stores still leads with about 24.5%. Whoosh, the fast-delivery service, is now available from 47 stores in Ireland. Tesco confirmed an Express store in Ballincollig, near Cork, will open at the end of November and employ 15 people, bringing its Express total across Ireland to 62.

Tesco began trialling its meal planning assistant in April with around 280,000 employees and started rolling it out to customers in September. The assistant uses Clubcard information to advise customers on what they may already have in their cupboard or fridge. Tesco said its in-house teams built it with Tomoro AI, and it has signed a three-year strategic partnership with Mistral. Murphy described the rollout as part of wider progress.

We are also making strong progress on AI-enabled personalisation, extending Your Clubcard Prices and beginning the customer rollout of our meal planning assistant, helping customers manage their busy lives.

Oil shock and the Iran conflict weigh on markets

The FTSE 100 closed down 16.90 points, or 0.2%, at 10,441.60, after trading as low as 10,367.25, while the FTSE 250 fell 0.4%. The Atlantic reported that the White House asked the Pentagon to look at strike options on Iranian targets, which could be carried out ahead of the US midterm elections on 3 November. Axios reported that the Pentagon called on Central Command to finalise preparations for a resumption of combat operations in Iran. Yemen's Houthis targeted Riyadh airport with missiles on Thursday and warned staff at Saudi oil facilities to leave. Attacks on tankers around the Strait of Hormuz were at a weekly high in the week to 5 October, with at least 12 attacks on oil, LNG and LPG tankers, since the US and Israel began the Iran war on 28 February. Tropical storm Isaias was building near the Gulf of Mexico, and David Morrison, analyst at Trade Nation, said:

Both Chevron and Shell were reducing offshore production as a result, adding to a 25% oil production shutdown across the region,

Kathleen Brooks, research director at XTB, linked the market moves to several pressures.

Geopolitics, politics and earnings risks are colliding,

Brent was quoted at figures between $102.8 and $105.57 a barrel on Thursday, depending on the source. The yield on the US 10-year Treasury was quoted at 5.34% on Thursday, up from 5.32% on Wednesday.