Britain's biggest grocer squeezes more profit from modest sales growth, and investors reward it with a sharp share price pop.
Tesco (LSE: TSCO) shares climbed 3.6% in early trading on Thursday after the supermarket giant posted higher sales and profit and sweetened its shareholder returns, defying a cautious consumer backdrop. In the 26 weeks to 29 August, sales excluding fuel rose 2% to £33.8bn, adjusted operating profit climbed 6.3% to £1,783m at constant currency, and free cash flow jumped 21% to £1,570m. Adjusted earnings per share rose 12%, and the board lifted the interim dividend by 5%.
The market's enthusiastic reaction reflects Tesco's ability to turn relatively modest top-line growth into meaningfully stronger profits and cash generation, a combination that analysts said signals real operational discipline. The group also narrowed its full-year adjusted operating profit guidance upward to between £3.15bn and £3.30bn, from a range that previously started at £3.0bn, while increasing its planned share buyback for the year to £950m from £750m, moves that reinforced confidence in management's outlook.
Growth was led by the core UK food business, where like-for-like sales rose 2.4%, alongside fast-expanding digital channels: online sales grew 8%, while the Whoosh rapid-delivery service surged 37% and is on track to surpass £500m of sales this year. Tesco has broadened its rapid-delivery reach through partnerships with Uber Eats and Deliveroo, and its premium Finest range grew 9%, pointing to resilient demand even among price-conscious shoppers.
Newer revenue streams, including the Tesco Media advertising arm, also contributed to the stronger performance, while the retailer reported record customer satisfaction scores and was again named Britain's favourite supermarket, underlining the breadth of the improvement beyond pure pricing.
Attention now turns to whether Tesco can sustain this momentum into the second half, with the upgraded profit guidance and expanded buyback setting a higher bar for delivery; any slippage in trading or margin pressure from competitive pricing could test the market's current confidence.
This report is based on Tesco’s announcement and coverage by UK Investor Magazine. Company announcements can be tracked via London Stock Exchange RNS and Investegate, and the full markets calendar is worth watching for the next update.
This article is for general information only and does not constitute investment advice or a recommendation to buy or sell any security. Photo: Franki Chamaki on Unsplash.
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