Tesco narrows profit outlook as shoppers shrug off 'uncertainty' driven by the Middle East conflict

Tesco narrowed its profit guidance this morning as its 'relatively resilient' shoppers shrugged off economic pressures driven by the Middle East conflict. 

Britain's largest grocer reported a 6.3 per cent increase in adjusted operating profit in the first half to £1.783billion even as the hot weather weighed on sales volumes. 

Tesco had said in April that it was giving a wider profit forecast than usual of between £3 billion and £3.3billion, given the uncertainty caused by the war in the Middle East.

But this morning it upped the lower end of this guidance, now steering profits between £3.15 billion and £3.30 billion. Sales rose 1.6 per cent to £33.7 billion in the six months to 29 August.

Chief executive Ken Murphy said he was ‘feeling really optimistic and positive’ as the grocer enters its critical Christmas trading period.

It said: ‘While consumer confidence has remained relatively resilient in the first half of the year, ongoing geopolitical tensions continue to create uncertainty, and we remain focused on helping customers get the best possible value from their weekly shop.’

Chief executive Ken Murphy said he was feeling positive about Christmas

It said it was increasing the size of its share buyback programme for the current year to £950 million, from £750 million.

Murphy said consumer resilience ‘is born out of dealing with kind of a series of of external shocks and events and kind of uncertainty.’

‘They have to a certain extent become used to it, and they deal with it and they get on with life,’ he added, also pointing to the grocer’s efforts to keep prices low.'

The business continued to see shoppers opt for premium dine-in ranges as restaurant prices have put many off from eating out.

Its Finest ranges saw an 8.9 per cent sales increase as more than 350 new products have been launched including a shake-up of bakery goods and new deli products. It expects Tesco Finest sales to top £3billion this year.

The results come days after it was revealed that Sainsbury’s and Morrisons ended talks over a potential billion-pound merger.

This would have created a giant with a 23.6 per cent market share - rivalling the 27.8 per cent share held by market leader Tesco, according to industry researchers Worldpanel.

Murphy said the business doesn’t ‘dwell too much’ on consolidation in the industry, when asked about the reports. 

‘We're very focused on delivering our strategic plan. Whatever happens in the market, we'll respond to it - and really, our plan is to stay ahead through consistently investing in the business.’

In addition to the rising uptake of GLP-1 weight-loss medications, Murphy said the grocer was also seeing a ‘general trend toward healthier living,’ with customers more interested in getting more protein and fibre.

This has influenced the company to increase its ranges of nutritious ready meals, no and low alcohol products and high-fibre bakery ranges.

Brits may be looking to make healthier choices and drink less booze this Christmas, Murphy said.

He said: ‘I do think it could be a marginally healthier Christmas. Although customers do love to indulge, and we have planned accordingly.’

‘We would say that there might be a more moderate Christmas from an alcohol point of view. We think low and no alcohol will see strong growth. We we think cocktails will do well, and you'll see more sales of ready-to-drink and premixed cocktails.’

‘Usual suspects’ set to do well include a cheesecake dessert range and party food ranges including prawn toast, Murphy said.

Murphy echoed his calls for shops to be given a reprieve on business rates at this month’s Budget.

He said: ‘We have long argued that the rate system is antiquated and unfair. Retailers pay, on average, four times their fair share of rates.’

He said his ‘one ask’ of the Government going into the Budget is to exempt all retailers from a higher tax-paying band for commercial properties deemed at least £500,000 in rateable value.

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