Tesco trims profit expectations amid discounter battle

Britain's biggest retailer Tesco has warned its full-year earnings will be towards the lower end of expectations as the impact of the cost-of-living crisis starts to bite into profits. The supermarket chain said it now expected a retail adjusted operating profit of between £2.4 billion and £2.5bn for the 2022-2023 financial year, having previously forecast a profit of between £2.4bn to £2.6bn. That is down from the £2.65bn it made in the 2021-2022 financial year. The group posted a 10 per cent fall in underlying retail operating profit, which stood at £1.25bn for the six months to August 27. And it cautioned that “significant” inflation pressures were being compounded by customer moves to rein in spending. “Significant uncertainties in the external environment still exist, most notably how consumer behaviour continues to evolve,” Tesco said. The supermarket chain is battling to retain customers as shoppers opt for cheaper rivals Aldi and Lidl, with the highest inflation in four decades and rising energy bills piling pressure on consumers to save money. Tesco reported a 1.5 per cent decline in comparable UK sales in the first quarter in June. However, the group reported a 0.7 per cent rise in like-for-like UK sales in the first half on Wednesday, beating analysts’ estimates for a decline. Tesco, which also owns wholesaler Booker, controls the UK grocery market, with a 27 per cent share, and employs more than 360,000 people. It unveiled its second staff pay rise this year to help to support workers amid the cost crisis and said it was freezing the prices of more than a thousand everyday products until 2023 to help cash-strapped customers. Chief executive Ken Murphy said: “We know our customers are facing a tough time and watching every penny to make ends meet. “That's why we are working relentlessly to keep the cost of the weekly shop as affordable as possible, with our powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices, together covering more than 8,000 products, week in, week out. “We are also investing significantly in our colleagues, with a further boost to pay announced today for our UK stores.” “Customers are seeking out the quality and value of our own-brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out. “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.” Rival Morrisons reported a 50 per cent slump in adjusted earnings in the third quarter last week. Even Aldi, which is winning customers and growing its market share, has reported a slide in pretax profit of more than 85 per cent from the year before. Analysts have said losing customers to Aldi and other discount supermarkets would be Tesco’s “main challenge” going forward.

Tesco trims profit expectations amid discounter battle

Britain's biggest retailer is facing significant competition from rivals such as Aldi and Lidl