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Tesco raises outlook and will buyback shares after strong first half

by Wanda Rich
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2021 10 06T062204Z 1 LYNXMPEH9505D RTROPTP 4 TESCO RESULTS 1

By James Davey

LONDON (Reuters) -Tesco, Britain’s biggest retailer, raised its full-year outlook as it reported a 16.6% rise in first-half core retail profit and increased sales despite labour and supply chain disruption and tough COVID-19 related comparisons a year ago.

The group said on Wednesday its strong first-half performance had enabled it to reduce net debt by 1.7 billion pounds ($2.3 billion) since February, and it would therefore use cash for a share buyback, with the first tranche of 500 million pounds in shares to be bought by October 2022.

Tesco forecast a full-year 2021-22 adjusted retail operating profit of between 2.5 billion pounds and 2.6 billion pounds ($3.40-$3.54 billion), having previously forecast a similar outcome to 2019-20, when it made 2.3 billion pounds.

Tesco, which has a 27% share of Britain’s grocery market, made adjusted retail operating profit of 1.386 billion pounds in the first half – ahead of analysts’ average forecast of 1.262 billion pounds and 1.192 billion pounds made in the same period last year.

First-half group sales rose 2.6% to 27.3 billion pounds, while UK like-for-like sales rose 1.2%, having risen 0.5% in the first quarter.

“We’ve had a strong six months; sales and profit have grown ahead of expectations, and we’ve outperformed the market,” said Chief Executive Ken Murphy.

“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,” he said.

Analysts say Tesco is benefiting from its huge online business, from a pricing strategy that matches the prices of German-owned discounter Aldi on around 650 products and the success of its “Clubcard Prices” loyalty scheme which offers lower prices to members.

However, chairman Tesco chairman John Allan told ITV last month that supply chain disruption meant food prices could rise by 5% this winter.

Tesco’s share price has risen about 10% so far this year but has underperformed both Sainsbury’s and Morrisons.

Morrisons, which is being taken over by U.S. private equity group Clayton, Dubilier & Rice, is up 60%, while Sainsbury’s, also buoyed by takeover speculation, is up nearly 33%.

Tesco is also paying an interim dividend of 3.2 pence, in line with the prior year.

($1 = 0.7351 pounds)

(Reporting by James Davey, Editing by Paul Sandle/Guy Faulconbridge)