Tesco got one over on arch rival Sainsbury today, lifting its profit guidance for the year after a bumper Christmas.
Sainsbury yesterday also reported strong Xmas sales, but disappointed the City by saying profits will be between the £670 million and £700 million range previously announced. Low sales in general merchandise also led to the shares taking a hit.
Today Tesco upped its own profit guidance to £2.75 billion, solidifying its position as the UK’s leading grocer with by far the largest market share.
More colleagues on the shop floor and a full Christmas dinner for just £2.09 each helped Tesco to a strong festive trading period according to chief executive Ken Murphy.
Murphy, paid £4.4 million last year, said: "The Tesco team has worked harder than ever to help customers celebrate this Christmas, with our strongest ever range of great value, fantastic quality food. I want to say a huge thank you to all of our colleagues for their relentless dedication and energy.”
The traditional big grocers have been fighting off a growing threat from German discount giants Aldi and Lidl for years now.
Overall retail sales in the third quarter rose 6.6%. Tesco, like Sainsbury, claims it is outperforming the market with price cuts on 2700 products and an Aldi Price Match deal.
It says it has the strongest market share since 2015 with especially strong performance in fresh food.
Tesco now expects to make profit for the year of £2.75 billion, above previous guidance of £2.6 billion to £2.7 billion.
The shares rose 1p to 298p which leaves the business valued at £21 billion.
Analysts say Tesco's finest range has done particularly well. That suggests people are spending extra money on food to eat at home and shunning expensive restaurants and bars.
Murphy admitted to concerns over the Suez canal dispute and what that could do to supplies – something he has little control over.
He is more optimistic about the prospects for the UK consumers.
He said: “Interest rates are stabilising and mortgage rates are starting to fall. I get the sense that things are balancing out for consumers. As long as we keep full employment I think they will be cautiously optimistic.”
He added it was “too early” to say that the cost of living crisis is over, but noted: “We have consistently held back on rising prices.”
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown, said:
“Tesco has managed what Sainsburys couldn’t quite muster, which is a profit upgrade for the full year. The tills were chiming away over Christmas, and the slightly conservative previous estimates, coupled with lower exposure to General Merchandise, means there’s room for expectations to be inflated. Investors will be especially pleased to hear of the £2bn in retail free cash flow due to pump round the business this year, helping to underpin the group’s ability to invest in staying competitive, and helping sustain the not insubstantial prospective dividend yield.”
John Moore, senior investment manager at RBC Brewin Dolphin, said: “Tesco has posted strong results, underlining its position as being at the upper end of the UK’s supermarket sector. Better than expected sales have seen the company increase guidance for the year and it looks increasingly well placed to deal with the current environment. Unlike Morrisons and Asda, Tesco isn’t saddled with debt, and the supermarket has simplified its product range – like Aldi and Lidl – which is filtering through into better working capital dynamics and improved margins.”
