Tesco's sales and profits jump as it hails 'resilient' supply chains

·3 min read
Tesco's sales and profits jump as it hails 'resilient' supply chains
Tesco said its profit had been boosted by people holidaying in the UK and the Euro 2020 football tournament. Photo: Getty

Tesco (TSCO.L) upped profit forecasts and hailed strong first-half year sales in results published on Wednesday, while it said it would start a £500m ($678.9m) share buyback scheme. 

The group's sales (ex-fuel and ex-VAT) were up 3% to £27.3bn in the six months to August, a beat on consensus.

Revenues were up by 5.9% to £30.4bn for the first six months, compared with the same period last year.

Profits were also up 28% to £1.3bn for that period. 

The FTSE 100 (^FTSE) company lifted its adjusted operating profit target for the year up to between £2.5bn and £2.6bn.

It said sales had been lifted by clothing and other household goods, as well as shoppers buying for the Euro 2020 football tournament and "staycations." 

Defying wider gloom in the sector due to HGV driver shortages and knock-on supply chain issues, the company said its links to suppliers had been "resilient."

"With various different challenges currently affecting the industry, the resilience of our supply chain and the depth of our supplier partnerships has once again been shown to be a key asset," said Ken Murphy, Tesco CEO.

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UK online sales rose again, by 2.3% against a tough comparative (two-year like-for-like of 74%).

Group retailing trading profit rose by a strong 16.6%, noting that at a reported level in H1 FY21 Tesco was "benefiting" from business tax relief plus also facing into material COVID-19 related costs, noting the payment of rates in H2. 

Tesco said its UK market share growth was fuelled by strong execution, the effectiveness of Clubcard Prices, "unbeatable" EDLP and the Aldi Price Match. 

Year-on-year, Tesco also saw a rebound in the headline performance of its Bank, which recorded a trading profit of £72m in the period (FY20; a loss of £155m).

Tesco shares jumped 4.8% in early trade in London following the results. 

Tesco's stock jumped as it announced results that beat expectations. Chart: Yahoo Finance UK
Tesco's stock jumped as it announced results that beat expectations. Chart: Yahoo Finance UK

There has been much speculation around the future of the UK grocery market in recent months following a drawn out takeover battle for Morrisons (MRW.L) by mostly US private equity houses. Some in the market think other players in the space could go private next, as Morrisons' failed suitors look for a place to deploy their cash. 

Read more: What it takes to be an HGV driver in the UK

“Industry insiders say Tesco is less attractive than Sainsbury’s (SBRY.L) because it lacks an extensive property portfolio, however it does offer exciting digital expansion plans, with its online infrastructure superior to its big four competitors," said Ross Hindle, analyst at Third Bridge. 

“Tesco has capitalised on the acquisition distraction at Morrisons, grabbing 20 basis points of market share."

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