(Bloomberg) -- Tesco Plc raised its profit outlook for this fiscal year after Britain’s largest supermarket chain pulled in more shoppers with sharp pricing and discounts.
The grocer said Thursday that it now expects to deliver £2.9 billion ($3.8 billion) of retail adjusted operating profit, nudging up its previous guidance of at least £2.8 billion. Like-for-like sales rose almost 3% in the first half.
Shares of Tesco rose more than 1.5% in early trading. The stock is up more than 38% in the past 12 months.
The results show that Brits are starting to buy more as inflationary pressures subside, although retailers are still having to work hard to attract shoppers using pricing and loyalty offers. Tesco said more than 23 million UK households now have a Clubcard, its loyalty program, up by about a million from earlier this year.
Tesco’s focus on keeping prices low means that more than 2,850 products were cheaper by an average of 9% at the end of the first half than at the start, according to Chief Executive Officer Ken Murphy. In Tesco’s home UK market comparable sales rose 4%, helped by strong demand for fresh produce.
‘Cartwheels’
While consumers “are not doing cartwheels down the hallway”, the results show “a willingness to spend a little bit more to treat themselves,” said Murphy on a press call.
The grocer is also benefiting from a slowdown at rivals Asda and Morrisons, helping it to secure the largest share of the market — more than 27% of sales — in the four weeks to Sept. 1, according to the latest Kantar data.
Tesco’s results were a bit mixed in that comparable sales were slightly softer than expected while margins were strong, said William Woods, an analyst at Bernstein. However, he added that he was “not too concerned” as Tesco is still growing ahead of the market.
“We think this reinforces Tesco’s position as a strong and stable performer, delivering margin improvement and strong free cash flow,” said Woods.
Tesco is “thriving in a changing UK landscape,” according to Frederick Wild at Jefferies, who said: “A 7% earnings before interest and taxes beat today should be the focus, instead of an upgrade to guidance perhaps a little more circumspect than anticipated.”
Murphy said the grocer is on track to meet a £500 million efficiency savings target this year. He said the market remains intensely competitive in the UK and grocers have to perform at their best to try and stay ahead.
“At any given moment there are 11 people competing for shopping baskets in the UK if you look across the market,” he said.
--With assistance from Lisa Pham.
(Updates with shares and analyst reaction starting from third paragraph.)
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