10 April 2025
If you are covering Tesco’s latest financial results, please find below a comment from Lucy Rumbold, equity research analyst at Quilter Cheviot:
“Tesco reported a good set of full year numbers with sales up 3.1%, mainly driven by durable volume performance in UK and Ireland. Operating profit also improved 11% and helped to contribute to a solid 5% margin. Tesco remains one of the leaders in this low margin, high volume space.
“The company also looks like it is well placed to manage the increase to national insurance contributions and the minimum wage. Its cost savings programme has delivered £510m in savings, which offsets the increased costs on staff wages. That said, there has been some weakness in the wider business, predominantly in Booker, where the ongoing decline in the tobacco market has weakened sales.
“Food retail has proven relatively resilient after the various tariff announcements of the past week, underscoring its defensive profile. Tesco sources predominantly in the UK with minor exposure to India, Hong Kong & China for non-food and clothing. Guidance for profit in the year ahead has been set at £2.7-£3bn which they have stated gives them flexibility and firepower to respond to current market conditions. This is slightly below what consensus excepted and has caused the shares to open negative. However, the group is known to guide conservatively.
“We also don’t see Asda’s recent pricing reset as something Tesco will worry about, with it likely to have little materially impact on its profitability. The group is responding through higher promotions; however, we don’t anticipate the impact to be as significant as the market has been pricing in, due to its robust supplier ties which helps it negotiate better deals, as well as its data analytical platform which enables it to better tailor its pricing strategy.
“Shareholders are also being well rewarded, with a share buyback and dividend that provides a low double digit return and demonstrates management’s continued commitment to returning cash. The share price devalued after Asda’s announcement and currently trades at an attractive entry point for investors.”
