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Tesco share price shrugs off flat profit outlook

Tesco delivery van

Since issuing a profit warning back in October the Tesco share price has gone from strength to strength, with the shares closing at 8-month highs earlier this week.

This is despite pressure on margins that have continued to come under pressure over the last 12 months from intense competition from the likes of Aldi and Lidl who have seen their own sales growth surge by over 12% over the same period.  

Today’s full-year adjusted operating profit numbers have seen the UK’s number one supermarket meet expectations, with profits of £2.63bn, a 6.9% fall from last year.

Total revenue saw a modest rise of 7.2%, coming in at £65.76bn as consumers were forced to pay more for everyday products, although it is notable that the rise is much lower than the current rate of inflation of 10.4% and even higher food price inflation levels of 17%. This mismatch serves to offer an insight into how much of the rise in food costs are being absorbed by Tesco along with its suppliers.

This is reflected in the fall in operating profits which fell over 40% to £1.5bn, and profits before tax which fell 50% to £1bn.    

There was a strong performance across the board with full-year like-for-like sales rising 5.1%, with the UK and Ireland businesses accounting for like-for-like sales growth of 4.7%.

Tesco’s Booker business also saw a strong performance with a 12% rise in like-for-like sales to £8.68bn, with a strong performance on both the catering and retail side. This was helped by a rebound in demand in the wake of the weak performance in the previous year due to covid related disruption.

On the outlook, Tesco said it was optimistic it would be able to deliver the same level of adjusted operating profit, as this year, despite the ongoing pressure on its margins, while keeping retail free cash flow in the region of £1.4bn to £1.8bn.

Tesco also said it would be buying back another £750m in shares over the next 12 months, announcing a slightly lower final dividend of 7.05p per share, while also committing to remain competitive with its Aldi price match scheme, as well as providing discounted prices to Clubcard holders.

Earlier this week Tesco announced it was cutting the price of milk for the first time since May 2020, while also locking in the price of 1,000 other everyday products until July 5th, as it continues to increase the pressure on its competitors.

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