Britain’s Tesco sticks with profit outlook after strong Christmas sales By Reuters

By James Davey

LONDON (Reuters) -Tesco, Britain’s biggest retailer, kept its full-year profit guidance after it joined rivals in reporting stronger than expected Christmas sales despite an escalating cost-of-living crisis.

The supermarket group, which has a 27.5% share of Britain’s grocery market, said on Thursday UK like-for-like sales rose 4.3% in its third quarter to Nov. 26 and were up 7.2% in the six weeks to Jan. 7. It said it had “good momentum” going into 2023.

British supermarkets have reported stronger-than-expected festive trading as families hosted larger Christmas gatherings after two years of pandemic restrictions and treated themselves at home rather than going out to save cash.

On Wednesday, Britain’s No. 2 supermarket group Sainsbury’s reported a 5.9% rise in underlying sales for its Christmas quarter, while discounters Aldi UK and Lidl GB have also reported bumper Christmas sales.

Industry data has shown the grocery sector as a whole delivered record festive sales, albeit growth was driven by price inflation rather than increased purchasing.

But European retailers are now bracing for a difficult 2023. In Britain consumer confidence hovers close to record lows, and inflation at 10.7% is forcing shoppers to manage budgets tightly.

“We go into the new calendar year with good momentum and I am confident we can continue to maintain our competitiveness and deliver a strong performance relative to the market despite the challenging conditions ahead,” Chief Executive Ken Murphy said.

Tesco (OTC:), like Sainsbury’s, is absorbing some of its cost inflation rather than passing it all on to consumers.

“I’m really pleased with our performance over this period – particularly the further strong growth at Christmas on top of the exceptional growth of the last few years,” he said, noting Tesco delivered its “most competitive offering to date”.

Tesco has benefited from a scheme to price-match Aldi on over 600 products and the popularity of a ‘Clubcard Prices’ loyalty programme that offers cheaper deals.

The group maintained its forecast for 2022-23 retail adjusted operating profit of between 2.4 billion pounds and 2.5 billion pounds ($2.9-$3.0 billion), down from the 2.65 billion pounds made in 2021-22.

It expects retail free cash flow of at least 1.8 billion pounds and profit from Tesco Bank of 120-160 million pounds.

Shares in Tesco have fallen 17% over the last year, but are up 7% over the last month.