TESCO has raised its profit outlook as it said the depth of its supplier network helped it weather supply chain disruption while maintaining product availability.
It made the move on the back of a “strong” half-year of sales and announced plans to hand about £500 million back to shareholders.
The supermarket giant hailed a robust performance as it told investors that both sales and profits grew more than expected in the six months to August.
“As industry supply chains came under increasing pressure, we were able to leverage our strong supplier relationships and distribution capability to maintain good levels of availability for customers, contributing to our market outperformance,” Tesco said. “Events such as the delayed Euro 2020 Football Championship and staycations also contributed to our growth in the current year.”
Tesco lifted its adjusted operating profit target for the year to between £2.5 billion and £2.6bn as a result.
It said customers continued to shop less frequently but “with considerably larger baskets than before the pandemic”.
The retailer said profits were boosted by strong sales but flagged that it expects some of its recent elevated sales will “fall away” over the rest of the year.
Group revenues rose by 5.9 per cent to £30.4bn for the six months, compared with the same period last year. Operating profits increased by 28% to £1.3bn for the period. Tesco also hailed the share buyback scheme which it said will see the firm buying £500m of shares back from investors.
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The company also said it has taken a £193m hit from settling claims relating to its misstatement of profits in 2014.
Ken Murphy, chief executive of Tesco, said: “We’ve had a strong six months, sales and profit have grown ahead of expectations, and we’ve outperformed the market.
“I’m really pleased with our progress as we increased customer satisfaction and grew market share leading to a strong financial performance.
“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.”
John Moore, senior investment manager at Brewin Dolphin, said: “Rather than consolidate after a period of good trading, Tesco has come out fighting with a strong set of results for the last six months and a new strategy for the years ahead.
“The plans for further cost discipline, an enhanced customer offering, investment in its operations, and shareholder returns provide a positive direction for the company following its restructuring in recent years.”
He added: “While Tesco’s shares currently trade at a relatively low valuation of the company, this could in part be addressed by the share buyback programme announced today – an option we could see more companies adopt relative to paying higher dividends, on the back of recent tax changes.”
Ross Hindle, analyst at Third Bridge, said: “The current supply shortage plaguing the UK is expected to force retailers to cut back on ranges, especially as we move towards the festive period. One would like to see Tesco deploy its enormous buying power to push even harder on suppliers and navigate shortages.”
Freetrade analyst David Kimberley said: “If Tesco can convince investors this is how things are going to be from now on, alongside maintaining a policy of returning cash to shareholders, then we’re likely to see more sustained investor interest.”
It comes as Tesco Bank has moved from an operating loss of £97m last year to an operating profit of £72m in the first half of this year.
The significant year-on-year change was due to last year’s increase in the provision for potential bad debts driven by the expected macro-economic impact of Covid-19, the bank said. Revenue grew by 12.2% “reflecting the benefit of the full acquisition of Tesco Underwriting”, while the gradual easing of lockdown measures in the first half of the year also drove an increase in ATM income.
Shares in Tesco Plc closed up 5.95%, or 15.05p, at 268.05p.
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