Tesco today reported higher profit forecasts and announced plans for a £500 million share buyback.
It announced adjusted retail operating profit to be between £2.5 billion and £2.6 billion this year.
AJ Bell’s Russ Mould said: “The supermarket is doing remarkably well if you consider it is now lapping an incredibly busy period for the company. Its 2020 half year to the end of August included the time when large parts of the nation raced to stockpile goods and many people had no choice but to try online grocery orders for the first time. Tesco excelled at being able to give people the delivery slots they needed.
“A year on, sales are higher still as it has grown market share. Food price inflation may have contributed to higher sales, so too will have a recovery in activity for wholesale division Booker. The fact that operating profit is shooting ahead shows that Tesco is dealing with its own cost pressures very well.
“Christmas is going to be a testing time for the business, given how there are fears of product shortages during the festive period. Tesco is going to have to keep a close eye on stock availability and to make sure its stores don’t have gaping holes on the shelves. But the company should be feeling a lot more comfortable about dealing with such pressures given how it did so well during the pandemic.
“It has greatly strengthened its online delivery capability and managed to keep a gigantic business running like clockwork during one of the most disruptive times for business in history. The pandemic was almost the ultimate test for how efficiently a business can run during times of stress and Tesco graduated with flying colours.
“The decision by Tesco to buy back shares makes sense. Its share price has been left behind in the recovery from the global market crash in February and March 2020, despite the business having made considerable gains strategically. Management clearly take the view that the shares are too cheap at the current level, so buying some back is a good way to deploy spare cash.”
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