Tesco Shares Rise Despite Falling Profits

Tesco (LON: TSCO), the UK's largest supermarket chain, has reported a 40.4% fall in operating profit in its preliminary results for 2022/23.

The company said it was an “incredibly tough year” for customers, with rising inflation and energy prices squeezing household budgets. Tesco's profit before tax fell 50.8% to £1 billion in the year.

Tesco shares are up almost 2% so far on Thursday, at 272.5p.

Despite the challenging conditions, Tesco reported a “strong sales performance,” with retail like-for-like sales up 5.1%. Revenue came in at £65.76 billion, up 7.2%, while group sales rose 5.3%.

Tesco's chief executive, Ken Murphy, said: “It's been an incredibly tough year for many of our customers, and we have been determined to do everything we can to help. Our results reflect our continued investment in delivering great value and quality for our customers whilst at the same time looking after our colleagues. This is despite unprecedented levels of inflation in the prices we have paid our suppliers for their products and the cost of running our own operations.”

He added that the resilience and agility the company has developed gives them a “sustainable competitive advantage that leaves us well-placed to deal with any challenges that may arise.” He noted that the company is now “the most competitive we have ever been.”

With inflation remaining elevated, consumer spending power is a challenge that is likely to remain under pressure over the coming months.

Tesco expects to deliver a broadly flat retail adjusted operating profit in 2023/24, with retail free cash flow within its target range of £1.4 billion to £1.8 billion. Bank adjusted operating profit is seen between £130 million and £160 million.