Tesco PLC (LSE:TSCO), Britain’s biggest grocer, warned that significant cost inflation will limit full-year adjusted operating profits towards the bottom end of previous guidance.
This would see profits come in between £2.4bn and £2.5bn, a fall of up to 15% from the £2.83bn posted last year, having previously forecast they would be £2.4-2.6bn.
Delivering first-half results the FTSE 100 group, which has a 27% share of Britain's grocery market, said “significant uncertainties in the external environment still exist, most notably how consumer behaviour continues to evolve.”
Tesco did, however, upgrade its expectation for full-year retail free cash flow to be at least £1.8bn and reiterated its forecast for a Tesco Bank adjusted operating profit of £120mln to £160mln.
At the interim stage, the supermarket group reported 3.1% growth in group sales (excluding fuel) to £28,178mln but said adjusted operating profits fell 9.8% to £1.3bn reflecting cost inflation and “ongoing investment in the customer offer.”
UK like-for-like sales rose 0.7%, having fallen 1.5% in the first quarter, with like-for-like sales at wholesale arm Booker up 13.9% in the period.
Tesco described its UK performance as solid and in line with expectations adding the competitiveness of its price offer was being recognised by customers in a tough market with its brand net promotor score the highest of the full-line grocers.
Promotions such as the Aldi Price Match, Low Everyday Prices and Clubcard Prices were helping ease cost-of-living pressures, Tesco said.
Tesco Bank posted adjusted operating profit of £67mln, down 6.9% driven primarily by up-front charges on new business while the group paid an interim dividend of 3.85p, up +20.3%.
Ken Murphy, chief executive said: “As we look to the second half, cost inflation remains significant, and it is too early to predict how customers will adapt to ongoing changes in the market.”