Easing Inflation Lifts Profit At UK Supermarket Tesco

Supermarket group Tesco, Britain's biggest retailer, said Thursday that net profit gained in its first half as cost pressures eased for consumers and companies.

Profit after tax jumped 13 percent to GBP1.1 billion ($1.4 billion) in the six months to late August from a year earlier with sales rising as inflation cooled, Tesco said in a statement.

Group sales rose 3.1 percent to GBP35.2 billion in the first half.

The supermarket giant reduced costs by GBP260 million in the first half and said that it expects to cut them by GBP500 million over the full year.

"We are in good shape, with volume growth delivering strong financial performance," Tesco chief executive Ken Murphy said in the earnings statement.

The company noted that "sales inflation returned to more normalised levels as cost inflation headwinds eased".

Soaring inflation in recent years sent costs jumping for companies while also reducing the amount of goods sold, lowering profits and in some cases causing huge losses.

UK inflation peaked at 11.1 percent in October 2022 but has since cooled markedly to 2.2 percent, slightly above the Bank of England's target.

Tesco said growth was supported thanks to it cutting prices on 2,850 products by an average of around nine percent.

It attracted customers with price offers in the face of growing competition in the UK from German-owned discounters Aldi and Lidl.

"Tesco's been the cheapest full-line grocer for nearly two years, which is luring more price-sensitive customers in the door," said Aarin Chiekrie, equity analyst at stockbroker Hargreaves Lansdown.

"Growth is being led by more customers taking items off the shelves which is more than offsetting the lower goods price-growth," he added.

Tesco said volume of food sales in its main UK market rose 4.9 percent in its first half, with strong demand for fresh goods.

It also noted strong growth for its premium range of groceries, which were up 14.9 percent year-on-year.

Recent strong trading updates from Tesco, among other British retailers, has indicated that "the UK consumer is willing to spend more now that the cost-of-living crisis has eased", explained Kathleen Brooks, research director at XTB trading group.

Tesco raised its forecast for retail operating profit for the full year to GBP2.9 billion, up from its previous guidance for GBP2.8 billion.

"With a strong start to the year and the all-important Christmas period just around the corner, this upgraded target looks well within reach," Chiekrie said.

Shares in Tesco rose 1.8 percent to 361 pence in early deals on London's top-tier FTSE 100 index, which was down slightly.