Tesco has said that profits could dip over the current year as it flagged increased uncertainty linked to the conflict in the Middle East.
The UK’s largest supermarket group reported stronger-than-expected adjusted operating profits of £3.15 billion for the year to February 28, up slightly from £3.13 billion a year earlier.
The retailer said it expects this to be between £3 billion and £3.3 billion over the current financial year, telling shareholders it was “providing a wider range of guidance than we were previously planning” due to uncertainty caused by the Iran war.
Tesco also revealed that sales, excluding VAT and fuel, grew by 4.6% to £66.6 billion for the past year.
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The group said on Thursday that it plans to make a further £500 million in cost savings in 2026/27, after surpassing its £535 million savings target last year.
Ken Murphy, chief executive of Tesco, said: “We are committed to doing whatever we can to help keep down the cost of the weekly shop, and with the conflict in the Middle East creating further uncertainty for consumers and the economy more broadly, that commitment matters more than ever.
“Over the last year, despite cost pressures from new regulation, we have increased our investments in keeping prices low, further improving quality and offering even better service.
“Customers are choosing to shop more with us as a result, leading to our highest market share for over a decade.”
Alex Pugh, investment writer at Freetrade, said: “Tesco’s full-year results look like a retailer in decent health serving a savvy consumer who wants to spend, but on their terms.
“Comparable sales were up 4.6% to £66.6bn, free cash flow rose 11.8% to £2bn, and adjusted diluted EPS climbed 6.0%, which points to a business still winning volume and winning share and loyalty. But adjusted operating profit rose just 0.8%: demand is there, though the cost of servicing it remains high.
“Tesco is still having to work hard for that growth, investing heavily in value, quality and service while absorbing operating cost inflation.
“The psyche of the UK consumer is a shopper in scrutiny mode. People want low prices, but they have not abandoned convenience, quality or the occasional treat either.
“The fact Tesco is expanding Everyday Low Prices, Clubcard Prices and Aldi Price Match while also growing Finest sales 15% to £3bn sums up contemporary British spending: thrift on the staples, selective on the extras, and very little tolerance for paying more without a very good reason.
“Households are still highly price-aware, still promotion-literate, and still buffeted by the cost-of-living squeeze. Current uncertainty to the Middle East conflict and broader economic unease are significant headwinds.
“The country’s biggest supermarket occupies that sweet spot: big enough to offer choice, sharp enough on value, and sophisticated enough to make value-conscious shoppers feel they are getting their money’s worth rather than simply buying cheap.”
