Tesco warns of lower profits amid rise in price competition

Tesco has warned of lower profits in the coming year, following a rise in the “competitive intensity” across UK supermarkets over the last few months. In its latest preliminary results, it has forecast profits for FY 25/26 to be between £2.7bn and £3.0bn, down from the £3.13bn that has been reported in its latest financial year. 

It added it was “committed to ensuring that customers get the best value in the market” and said it “sees further opportunities to protect and strengthen our competitiveness”.

It comes as group sales for FY 24/25 rose by 4% to £63.6bn, up from £61.5bn the prior year, while group like-for-like sales rose by 3.1%, with UK sales up by 4%.

Meanwhile, adjusted operating profits rose by 10.9% to £3.13bn, with UK & ROI profits up 10.3% to £3.02bn, supported by a strong volume performance and Save to Invest delivery.

In addition, its UK market share reached its highest level since 2016, rising by 67 basis points to 28.3%, with share gains for 21 consecutive four-week periods.

The group noted its investments over the last four years have resulted in the “most competitive position and highest market share we have had for many years, leading to a strong financial position and positive trading momentum”.  

It added it “delivered well” against the multi-year performance framework we set out in 2021, and maintained a disciplined approach to capital, leading to strong cash generation and shareholder returns.

CEO Ken Murphy said: “Our continued focus on value and quality, coupled with market-leading availability, has contributed to another year of increased customer satisfaction and our highest market share for nearly a decade.  We have invested in bringing great prices to our customers throughout the year, and continued to innovate with over 1,600 new or improved products including 400 new Finest lines, where overall sales grew 15%.

“We are also making significant progress on our long-term growth opportunities, further enhancing our digital capabilities with increased personalisation, further improvements to our online experience and an expanded retail media offering.”

He added: “Building on our strong financial performance, robust balance sheet and positive momentum, we are setting ourselves up for the year ahead with the flexibility to continue to win in a highly competitive market. 

“Despite inflationary headwinds, we are committed to ensuring customers get the best possible value by shopping at Tesco, and see further opportunities to strengthen our competitiveness. By putting customers first, we will continue to create sustainable value for every stakeholder in Tesco.”