What Tesco (TSCO) Said on Its H1 Earnings Call

Key Points

• Tesco delivered solid first-half growth: adjusted operating profit rose 6.5% to £1.783 billion, EPS increased 12.2%, and free cash flow reached £1.57 billion.
• The company raised its share buyback program by £200 million to £950 million and increased planned capital expenditure to about £1.7 billion, citing confidence in cash generation and growth investments.
• Tesco narrowed its full-year adjusted operating profit outlook to £3.15 billion–£3.3 billion, targeting the upper half of its previous range, supported by U.K. food, online sales and rapid-delivery service Whoosh.

Tesco LON: TSCO reported higher first-half sales, profit, cash flow and earnings per share, while raising its share buyback plan and narrowing its full-year adjusted operating profit outlook toward the upper half of its previous range.

Speaking on the company’s earnings call, Ken said Tesco achieved its highest-ever customer satisfaction score during the half, citing continued investment in value, quality and service. The retailer launched more than 800 new or improved products, expanded personalized Clubcard Prices to about 2.5 million customers and began rolling out an AI-powered meal-planning tool following a colleague trial.

“Our customer satisfaction score is the real standout for us because that really determines how we feel about performance,” Ken said in closing remarks.

Sales and Profit Growth

Chief Financial Officer Imran Nawaz said group sales rose 1.6% at constant exchange rates, while profit increased 6.3% at constant rates. Adjusted operating profit totaled £1.783 billion, up 6.5% at actual rates, and group operating margin expanded by 13 basis points to 4.8%.

Adjusted profit after tax increased 6.8%, while statutory profit after tax rose 11.8%, which Nawaz attributed partly to a lower level of adjusting items. Earnings per share rose 12.2% during the half. Tesco proposed an interim dividend of 5.05 pence per ordinary share, in line with its policy of paying 35% of the prior year’s total dividend as an interim payment.

Free cash flow was £1.57 billion, including an approximately £250 million net benefit primarily related to payroll timing that is expected to unwind in the second half. Tesco’s net debt ratio stood at 2x.

The company increased expected capital expenditure for the year to about £1.7 billion from previous guidance of about £1.6 billion. The additional spending will focus on productivity and growth projects, including energy efficiency and capabilities intended to support Tesco’s Save to Invest program.

Tesco also increased its current-year share buyback program by £200 million, to £950 million from £750 million. Nawaz said the decision reflected confidence in sustained cash generation and the company’s balance sheet, after accounting for investment opportunities within the business.

U.K. Performance and Digital Growth

In the U.K., sales grew 2.1%, with like-for-like sales up 1.5%. Food like-for-like sales increased 2.4%, while Tesco Finest sales rose 9%. Tesco said it expects Finest sales to exceed £3 billion for the full year.

Online continued to be a major contributor, with U.K. online like-for-like sales up 8.4%. Grocery home-shopping orders rose 4.9%, while the number of Delivery Saver subscribers increased 6.1%. Tesco said its grocery home-shopping market share increased by 16 basis points.

Rapid-delivery service Whoosh posted sales growth of 37%, driven by higher orders and a larger average basket size. Ken said Whoosh became the U.K.’s leading rapid-grocery provider before Tesco expanded its reach through partnerships with Uber Eats and Deliveroo. The company expects Whoosh sales to exceed £500 million this year.

Ken said the third-party delivery partnerships were intended to reach customers who are new to the Tesco ecosystem. He said early results showed lower cannibalization than the company had expected and strong Clubcard sign-ups from customers using the platforms.

Nawaz said Whoosh is profitable and benefits from Tesco’s existing store network. The company said the service required approximately £7 million to £8 million of capital expenditure to establish, while delivery labor is variable and price premiums cover the associated costs.

International, Booker and Efficiency Initiatives

In Ireland, Tesco recorded total sales growth of 6.7% at constant rates and like-for-like sales growth of 4.1%. The company said it gained 44 basis points of market share, reaching 24.1%. Online sales in Ireland rose 11.9%.

Central Europe sales increased 1.1% at constant rates, including 0.4% like-for-like growth. Online sales in the region rose 19.2%, supported by expanding dot-com operations to another 17 stores and lifting population coverage to 85%.

Booker made what Tesco described as good underlying progress. On a two-year basis and excluding tobacco, Booker like-for-like sales were up 2.7%, with growth across the business. The company added 275 net new retail partners to its symbol brands.

Tesco said its Save to Invest program remains on track to deliver £500 million in savings this year, bringing cumulative savings to more than £2.7 billion over five years. Savings have come from initiatives including improved online picking and greater use of AI-enabled processes for replenishment, availability and store productivity.

Customer Investment and Outlook

The retailer said it maintained its price position with more than 700 products on Aldi Price Match, more than 10,000 Clubcard Prices each week and low everyday prices on daily essentials. It expanded Aldi Price Match to more than 2,000 Express stores.

Tesco invested more than £200 million in U.K. store colleague pay during the half, including a 5.1% increase in hourly pay. It also said 200,000 colleagues had completed its Most Helpful Shopping Trip training program.

For the full year, Tesco now expects adjusted operating profit of between £3.15 billion and £3.3 billion, narrowing guidance to the upper half of its prior range. It maintained its expectation for free cash flow within its medium-term £1.5 billion to £2 billion range.

Nawaz said first-half profit performance was better than Tesco had anticipated when it issued guidance in April, helped by favorable product mix, savings delivery and contributions from newer income streams including Tesco Media and Whoosh. However, he said the company remains prepared to invest where necessary in the second half amid factors including the U.K. budget, Christmas trading and rising household energy bills.

“We want to set ourselves up, as we always do, to make sure we are set up to win, and we have the flexibility to invest wherever we see opportunities,” Nawaz said.

About Tesco (LON:TSCO)

Tesco was built to be a champion for customers, serving them every day with affordable, healthy and sustainable food. Across the Group, our purpose is at the core of what we do: serving our customers, communities and planet a little better every day. Our fantastic team of over 340,000 colleagues go above and beyond to serve our customers. We work hard to be a place where everyone is welcome, where all colleagues can be at their best and build the skills to grow their careers.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.