The Chief Executive of Tesco, Ken Murphy, announced that UK shoppers appear to be in “good shape” and are beginning to indulge in higher-priced items ahead of the holiday season, leading the country’s largest supermarket to revise its profit expectations upwards.
Murphy expressed optimism regarding consumer confidence during a statement made on Thursday, noting an increase in sales within Tesco’s premium food offerings, despite recent data suggesting weaker household sentiments.
As the leading player in the grocery sector, holding a 27.8% market share, Tesco closely monitors consumer sentiment. Murphy indicated that there has been “stability in consumer sentiment” and a newfound willingness to make more extravagant purchases.
While he acknowledged that consumers aren’t overly exuberant, he stated they are generally in a decent position, although he cautioned that broader economic uncertainties remain.
This outlook differs significantly from a noticeable dip in UK consumer confidence reported in September, which was influenced by expectations surrounding the autumn budget. Surveys indicated a decline in confidence following comments from Sir Keir Starmer regarding public finance and potential tax increases.
Simon Roberts, CEO of Sainsbury’s, the second-largest supermarket in the UK, recently highlighted that consumer confidence is unlikely to improve until the government unveils its fiscal plans in the upcoming budget.
Following a stronger-than-anticipated performance in the first half of the fiscal year, Tesco raised its forecast for annual retail adjusted operating profit to approximately £2.9 billion, up from a prior estimate of at least £2.8 billion.
This positive outlook resulted in Tesco’s shares climbing by 11.4p, or 3.2%, to 366.3p; over the past year, Tesco’s stock has appreciated by 35%, while the FTSE 100 index has increased by 11% in the same timeframe.
For the six months ending in late August, Tesco experienced a 13% rise in operating profit, reaching £1.61 billion, compared to £1.43 billion for the same period the previous year.
Total sales across Tesco’s operations grew by 3.5% to £31.5 billion, with like-for-like sales experiencing a 2.9% increase.
Murphy stated that Tesco is in a solid position, with volume growth contributing to robust financial results as sales inflation returned to more typical levels.
Tesco reported that it has reduced prices on over 2,850 products in the UK, averaging a 9% decrease during the first half of the year. The retailer emphasized its commitment to lowering customer prices as inflation trends downward.
Using strategies such as Aldi Price Match and Clubcard Prices, Tesco has drawn in budget-conscious shoppers, which they credit for enhanced sales and market share.
Recent data revealed a 15% surge in sales volumes for the “Tesco Finest” premium range compared to last year, which Murphy regards as a significant indication of a resilient consumer demographic.
Tesco noted that its sales growth was predominantly volume-driven with retail like-for-like sales up 2.9% during the period. Although these figures were slightly lower than some analysts’ predictions of 3.3%, Murphy attributed this to a softer inflation rate, which generally leads to smaller price increases and benefits customers.
Conversely, like-for-like sales at Booker decreased by 1.9% due to a notable reduction in tobacco volumes, which Murphy cited as a trend of decreasing smoking rates and a shift towards vaping or cheaper duty-free options while traveling.
Murphy refrained from commenting on the forthcoming budget or Labour’s proposed reforms regarding workers’ rights, but expressed a strong interest in ensuring that any government initiatives enhance productivity, promote growth, and safeguard worker protections.