Tesco's profits surge to £1.3bn as it hails supply chain resilience

Tesco’s profits surge by 28% to £1.3billion as it hails supply chain resilience after Euro 2020 and staycations boosted business

  • Supermarket giant lifts adjusted operating profit target for year to up to £2.6bn
  • Tesco says sales and profits grew more than expected in six months to August
  • Britain’s biggest retailer and supermarket has a 27% share of UK grocery market

Tesco revealed today that profits have grown more than expected in the six months to August, surging to £1.3billion – and insisted that its supply chain is resilient.

The firm lifted its adjusted operating profit target for the year to between £2.5billion and £2.6billion as a result, as it said it ‘outperformed’ the wider grocery sector.

Britain’s biggest retailer said operating profits increased by 28 per cent to £1.3billion for the first six months of 2021, compared with the same period last year.

Revenues jumped by 5.9 per cent to £30.4billion while it had a 16.6 per cent rise in first-half core retail profit despite labour and supply chain disruption hitting Britain.

Tesco told how it was ‘able to leverage our strong supplier relationships and distribution capability to maintain good levels of availability for customers’. 

Growth was boosted by people gathering to watch the delayed Euro 2020 football tournament along with the staycations boom due to international travel restrictions. 

Tesco said profits were helped by strong sales but flagged that it expects some of its recent elevated sales will ‘fall away’ over the rest of the year.

Tesco revealed today that sales and profits at the chain have grown more than expected

The supermarket giant, which has a 27 per cent share of Britain’s grocery market, made an adjusted retail operating profit of £1.386billion in the first half.

This was ahead of analysts’ average forecast of £1.262billion and £1.192billion made in the same period last year.

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

Tesco chief executive Ken Murphy said: ‘We’ve had a strong six months; sales and profit have grown ahead of expectations and we’ve outperformed the market.

‘I’m really pleased with our progress as we increased customer satisfaction and grew market share leading to a strong financial performance.

‘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.’

Tesco also launched a share buyback scheme which it said will see the firm buying £500million of shares back from investors.

The company also said it has taken a £193million hit from settling claims relating to its misstatement of profits in 2014.

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

Ken Murphy, chief executive of Tesco, said the supermarket has ‘had a strong six months’

Retail expert Julie Palmer, partner at corporate recovery firm Begbies Traynor, said: ‘Despite the good news from Tesco today, the future looks much more uncertain.

‘The supermarket has already warned the UK government that the shortage of lorry drivers could cause severe disruption to deliveries, causing panic buying in the run-up to Christmas.

Grocery market share 

Data from Kantar Worldpanel 

‘While this may push up sales temporarily, it also means chaos when stock runs out and rising costs for the supermarket which it may struggle to pass on to its customers in a competitive market.

‘Add supply chain disruption, an energy crisis, wage inflation and a lack of workers to the basket, Tesco has considerable headwinds in the final quarter of the year.

‘Tesco like all supermarkets, not only benefitted from its essential retailer status, but it also outshone its competitors by exceeding with profits and performance. However, it is now being tested once again with potential empty aisles and quiet tills.’

And Richard Lim, chief executive of Retail Economics, said: ‘These are hugely impressive results and the retailer has once again become the one to watch. 

‘Their transformation towards a more simplified business model is delivering improved efficiency and winning over customers with a renewed focus on price and loyalty.

‘It appears the retailer has also been better positioned to deal with supply chain disruptions given their clout in the market and working extremely close with their suppliers to ensure continuity of supply. 

‘Nevertheless, with global commodity prices on the rise and pressure on other operating costs, it feels inevitable that some of this pressure will have to be passed on to consumers soon.’

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