Tesco upgrades outlook as inflation eases

Tesco, Britain's biggest supermarket, upgraded its annual profit guidance on Wednesday as food inflation eased and shoppers snapped up both its low price offers and its premium "Finest" ranges.

British food prices fell in September for the first time in more than two years in month-on-month terms and the annual rate of food price inflation fell for a fifth month in a row to 9.9 per cent, helping to underpin an improveement in consumer confidence.

Tesco, which has a 27 per cent share of Britain's grocery market, says its overall price rises are lower than headline rates.

That has helped drive market share the group said, and it now expects 2023/24 retail adjusted operating profit, its preferred metric, to be between £2.6 billion and £2.7 billion.

It had previously forecast about £2.5bn.

"Food inflation fell across the half and while external pressures remain, we expect that it will continue to do so in the second half of the year," said Ken Murphy, chief executive.

Tesco, like most supermarkets, has reduced the prices of food staples, such as milk, pasta and vegetable oils, in recent months as commodity and other input costs have eased, and it competes with fast-growing German discounters like Aldi by matching prices on key items.

It has also benefited from consumers entertaining at home rather than dining out, and from shoppers switching to it from more expensive grocers.

In the first half, Tesco made retail adjusted operating profit of £1.42bns, ahead of analysts' average forecast of £1.35bn. UK like-for-like sales were up 8.7 per cent in the first half.

(Reuters)