Tesco hikes profit forecast after record Christmas

Britain's biggest retailer Tesco on Thursday posted record sales for the key Christmas trading period as inflation stayed high, causing it to upgrade its forecast for full-year earnings.

Tesco said annual retail operating profit was expected to come in at around £2.75 billion, up from its previous guidance for £2.6-2.7 billion.

"We stepped up our investment in service over the key festive period, with more colleagues on the shop floor, helping to deliver market-leading availability and making this our best Christmas yet," chief executive Ken Murphy added in the trading statement.

In the 19 weeks to January 6, comprising Tesco's third quarter and Christmas trading period, UK sales jumped 8.1 percent to £16.8 billion compared with one year earlier.

"Tesco saw strength in fresh food sales and stated that its food inflation was less than its key competitors," noted Kathleen Brooks, analyst at XTB trading group.

Snacks and party food sales jumped 13.5 per cent and sales of its top-end "Finest" range rose 17 per cent, on overall underlying UK sales growth of 6.8 per cent.

While Murphy said he was "cautiously optimistic" about the UK consumer, he warned that a cost of living crisis, where for the last two years high inflation has hit household incomes, was not over.

"It's too early to call that," Murphy told reporters.

No. 2 supermarket group Sainsbury's said on Wednesday that, like Tesco, it was seeing consumers spend more on its more expensive food ranges, as they entertain at home rather than going to restaurants.