Tesco PLC on Thursday upped its free cash flow goal, announced a new buyback and set out a wider range of guidance due to ‘uncertainty caused by the conflict in the Middle East’.
The grocer reported revenue and profit ahead of expectations, and it unveiled a new £500 million cost saving aim.
Shares in the Welwyn Garden City-based firm shot up 3.3% to 487.50 pence each in London on Thursday morning.
Pretax profit in the year to February 28 grew 8.5% to £2.40 billion from £2.22 billion. Adjusted operating profit edged up 0.8% to £3.15 billion from £3.13 billion, topping the company-compiled consensus of £3.10 billion and ahead of the grocer’s own guidance range of £2.9 billion to £3.1 billion.
Revenue, which excludes value-added tax but includes fuel, rose 5.4% to £73.71 billion from £69.92 billion, beating consensus of £72.55 billion.
‘We are committed to doing whatever we can to help keep down the cost of the weekly shop, and with the conflict in the Middle East creating further uncertainty for consumers and the economy more broadly, that commitment matters more than ever. Over the last year, despite cost pressures from new regulation, we have increased our investments in keeping prices low, further improving quality and offering even better service,’ Chief Executive Ken Murphy said.
Tesco’s free cash flow increased 12% to £1.96 billion from £1.75 billion. Tesco upped its medium-term free cash flow guidance range to £1.5 billion to £2.0 billion, from £1.4 billion to £1.8 billion previously.
‘We are confident that disciplined capital management and progress against our strategic ambitions will allow us to continue to deliver against the sales and profit ambitions of the multi-year performance framework we set out in 2021. Reflecting our confidence in future cash generation, we are upgrading our medium-term free cash flow guidance range,’ the company said.
‘We will continue to do whatever we can to deliver the very best prices, quality and service for our customers, and are targeting a further £500 million saving this year through our Save to Invest programme, to help fund investments in our customer offer.’
Looking to the new year, it expects adjusted operating profit between £3.0 billion and £3.3 billion.
‘Reflecting the increased uncertainty caused by the conflict in the Middle East, we are providing a wider range of guidance than we were previously planning. Much will depend upon the duration of the conflict and in particular, the potential implications for UK households and the economy more broadly,’ Tesco said.
The firm announced a further share buyback of £750 million to be completed by April of next year. In addition, it announced a 9.7p final dividend, an increase from 9.45p. It takes the full-year payout to 14.5p, a 5.8% rise from 13.7p.
CEO Murphy added: ‘I am also pleased to announce a £65 million special performance award for colleagues in our stores, distribution centres and customer engagement centres. Our further investments in value included tripling the number of products on everyday low prices to 3,000, running alongside over 10,000 Clubcard prices and more than 600 Aldi price match lines. We have also continued to invest in quality and innovation, with over 2,000 new and improved products across the year, and Finest growing 15% to reach sales of £3 billion.
‘We continued to meet customer needs wherever, whenever and however they chose to shop with us, with overall online sales growing 11%, including Tesco Whoosh growth of 51%. Since setting out our multi-year performance framework in 2021, we have delivered meaningful progress for all our stakeholders. As new opportunities and challenges have emerged, we have evolved our strategic ambitions, positioning us well to deliver sustained long-term growth by providing even better value for customers.’
On a 52-week comparable basis, and excluding both fuel and VAT, Tesco sales rose 4.6% on-year to £66.59 billion, a 4.3% climb at constant rates and 3.5% like-for-like. UK & Republic of Ireland sales rose 5.1%, or 5.0% at constant rates and 4.2% on a like-for-like basis.
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