Tesco raises outlook and increases market share after bumper Christmas sales

·Business Reporter, Yahoo Finance UK
·3-min read
MEIR, ENGLAND - JANUARY 04: : A general view outside Tesco supermarket on January 04, 2022 in Meir, England. (Photo by Nathan Stirk/Getty Images)
Tesco now expects operating profit to be “slightly above” the top-end of its previous £2.5bn ($3.4bn) to £2.6bn guidance range. Photo: Nathan Stirk/Getty Images

Tesco (TSCO.L) hailed bumper sales over the Christmas period, reporting an 8.8% rise compared to two years ago, and reaching its biggest market shares in four years.

The supermarket chain, which is Britain’s largest grocer, also raised its profit outlook for the second time in four months thanks to strong sales at large stores and convenience outlets, and online sales significantly higher than pre-pandemic levels.

It now expects operating profit to be “slightly above” the top-end of its previous £2.5bn ($3.4bn) to £2.6bn guidance range.

Like-for-like sales rose 0.3% year-on-year over the Christmas period and were 0.2% higher in the third quarter to 27 November.

Tesco, which has a near 28% share of Britain's grocery market, added that around 13,000 temporary Christmas staff have been kept on at the firm to help cope with staff absences due to COVID-19.

The grocer said almost half of the 30,000 temporary staff taken on over the festive season have been hired until at least the end of January.

It also revealed robust trading in its banking division after an improved outlook for credit losses. Tesco Bank is now expected to post an operating profit of between £160m ($220m) and £200m ($274m).

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But the group did warn of rising food prices as costs almost doubled to 5%, with customers already seeing a 1% increase over the past 19 weeks.

Shares in the firm slipped 1.6% in London on the back of the trading update.

“Despite growing cost pressures and supply chain challenges in the industry, we continued to invest to protect availability, doubled down on our commitment to deliver great value and offered our strongest ever festive range,” Ken Murphy, chief executive of Tesco, said.

“This put us in a strong position to meet customers' needs as, once again, COVID-19 led to a greater focus on celebrating at home.

“As a result, we outperformed the market, growing market share and strengthening our value position.”

Tesco shares fell on Thursday despite the positive update. Chart: Yahoo Finance
Tesco shares fell on Thursday despite the positive update. Chart: Yahoo Finance

The news comes as supermarket rival Sainsbury's (SBRY.L) also lifted its full-year profit forecast on Wednesday to at least £720m before tax, up from £660m.

The business saw a 0.8% rise in sales in the six weeks to 8 January, with strong demand for premium food and champagne over the festive period.

Grocery sales over Christmas rose by 0.1%, compared to the year before, while sales of food and drink saw a boost of 6.8% in comparison with pre-pandemic levels.

“If you wind the clock back two months, all of the talk in the grocery sector was whether supermarket shelves would be empty or not due to the HGV driver shortage and the ongoing supply chain crisis,” Mark Crouch, analyst at multi-asset investment platform eToro, said.

“However, instead, here we are today with Tesco announcing bumper sales and upgrading its profit forecast.”

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He added: “There are several reasons for this. Firstly, it demonstrates the strength of Tesco’s relationships with suppliers and its logistical prowess, ensuring that it did not disappoint customers over Christmas and that profits did not take a hit.”

Meanwhile Richard Hunter, head of markets at Interactive Investor, said: “The shares have mirrored Tesco’s trading strength, having added 21% over the last year, as compared to a 12% hike for the wider FTSE100.

“While the weight of market expectation is a potential downside to the price, boosted by another Christmas cracker, the market consensus of the shares as a strong buy is unlikely to be troubled.”

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