Tesco PLC (LSE:TSCO) shares fell 4.5% to 320p after the grocer unveiled a £1.45 billion share buyback alongside a strong set of results for last year but said profits are likely to fall this year.
The UK’s largest supermarket reported a £3.13 billion underlying profit for the past year to February, up 10.6% year-on-year and ahead of the £3.08 billion analyst consensus.
But its new outlook suggested profits could decline up to almost 14% amidst a “further increase in the competitive intensity of the UK market” in the last few months. This is likely to be a reference to Asda’s turnaround, which last month announced a significant new phase of investment under a new heavyweight boss.
A wide range of profit guidance for the new year was given for between £2.7 billion and £3 billion, suggesting a potential fall of between 4% and 13.7%.
The FTSE 100-listed group said it was "providing guidance that gives us flexibility and firepower to be able to respond to current market conditions”.
Chief executive Ken Murphy said: "Building on our strong financial performance, robust balance sheet and positive momentum, we are setting ourselves up for the year ahead with the flexibility to continue to win in a highly competitive market.
"Despite inflationary headwinds, we are committed to ensuring customers get the best possible value by shopping at Tesco, and see further opportunities to strengthen our competitiveness."
This suggested that price promotions, backed up by other elements, will be the key weapon in the new supermarket battleground.
Tesco said the buyback comprising £750 million funded by free cash flow and £700 million funded by the sale of Tesco Bank, is to be completed by April 2026.
Analysts said the new guidance amounts to around a 6-9% EBIT downgrade.
** Update: Adds share price and analyst comment **