Tesco has raised its annual profit outlook after a stronger first half, with rising online grocery sales and resilient consumer demand helping Britain’s largest supermarket navigate an uncertain economic environment.
The group reported sales excluding fuel and VAT of £33.8bn for the 26 weeks to August 29, up 1% on a like-for-like basis from the same period a year earlier. UK sales increased 1.5%, while adjusted operating profit rose 6.3% to £1.8bn.
Tesco now expects full-year adjusted operating profit of between £3.15bn and £3.3bn, narrowing the bottom of its previous guidance range of £3bn to £3.3bn and signalling greater confidence in its ability to withstand continued pressure on household finances.
The performance nevertheless reveals a consumer economy still shaped by caution. Tesco said consumer confidence had proved “relatively resilient”, but warned that “ongoing political tensions continue to create uncertainty”, with shoppers continuing to prioritise value in their weekly grocery spending.
Ken Murphy, Tesco’s chief executive, said: “Against an uncertain external backdrop, we have continued to invest in giving customers the very best value for money.
“Our focus remains on helping customers get the best possible value from their weekly shop.
“Looking ahead, we’re excited to bring our new Christmas ranges to customers and help them enjoy a great festive season.”
The shift towards value has not prevented shoppers from spending on higher-end products, however. Tesco’s Finest range recorded a 9% increase in UK sales, suggesting that consumers are becoming more selective rather than uniformly cutting spending.
The strongest growth came from digital grocery. UK online sales rose 8.4%, while average grocery orders increased, pointing to continued structural demand for home delivery even as shoppers remain sensitive to prices.
Tesco’s rapid delivery operation, Whoosh, performed particularly strongly, with sales jumping 37%.
The figures underline the extent to which the supermarket’s growth is increasingly being driven by a combination of scale, digital convenience and a carefully managed balance between value and premium products.
Fuel provided another significant boost to the headline numbers. Tesco’s fuel sales increased by almost a fifth year-on-year, although the company attributed the rise largely to higher oil prices pushing up costs for motorists rather than a corresponding increase in underlying consumption.
The distinction is important for investors assessing the quality of the group’s sales growth. While higher fuel prices lift reported revenue, they do not necessarily represent stronger underlying consumer demand.
Tesco’s underlying grocery performance was therefore more closely reflected in the rise in UK like-for-like sales and the continuing expansion of its online operations.
The results also point to the supermarket sector’s changing competitive landscape. Consumers remain prepared to spend, but their behaviour is becoming increasingly segmented, with demand for low prices coexisting with growth in premium ranges and convenience-led online shopping.
That creates a delicate environment for retailers. Maintaining market share requires continued investment in prices and customer loyalty, while higher operating costs make it harder to translate sales growth directly into profits.
Tesco’s 6.3% rise in adjusted operating profit nevertheless indicates that the group has so far managed to protect margins while continuing to invest in its proposition.
The stronger profit outlook comes as the supermarket heads into the crucial Christmas trading period, traditionally one of the most important points in the retail calendar.
For Tesco, the challenge will be to sustain the momentum without losing sight of the economic pressures still shaping household behaviour.
The first-half figures suggest consumers have not stopped spending. Instead, they are becoming more deliberate about where that money goes — seeking value for everyday purchases, while continuing to pay for convenience and selected premium products.
That increasingly nuanced consumer behaviour may prove just as important to Tesco’s prospects as the headline increase in sales.
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