Tesco H1 Adj. Operating Profit Increases; Lifts FY Guidance

Tesco reported mixed first-half results, with statutory pretax profit declining to £1.30 billion and EPS to 14.22 pence, while adjusted operating profit increased to £1.67 billion and adjusted EPS rose to 15.43 pence. The retailer demonstrated strong underlying performance, with revenue growing to £36.04 billion and group like-for-like sales up 4.3% across all markets. Reflecting this operational strength, Tesco raised its full-year FY25/26 adjusted operating profit guidance to a range of £2.9 billion to £3.1 billion, an increase from the prior forecast of £2.7 billion to £3.0 billion.

Analysis

Tesco's first-half results present a mixed picture on the surface but reveal underlying operational strength and a confident outlook. While statutory pretax profit declined to £1.30 billion from £1.39 billion year-over-year, adjusted operating profit showed a slight increase to £1.67 billion. The key drivers of performance were robust top-line growth, with revenue increasing to £36.04 billion and Group like-for-like sales rising 4.3% across all markets, indicating strong consumer demand. This operational momentum has led management to upgrade its full-year guidance for fiscal 25/26, now expecting adjusted operating profit to be between £2.9 billion and £3.1 billion, an increase from the previous range of £2.7 billion to £3.0 billion. This upward revision in the forecast is the most significant signal, suggesting that the headwinds impacting statutory profit are considered manageable and are outweighed by core business strength.

Key Decisions for Investors

• Investors should weigh the upgraded full-year operating profit guidance more heavily than the decline in first-half statutory profit, as it reflects management's confidence in sustained operational momentum.
• The 4.3% like-for-like sales growth is a key performance indicator; continued strength in this metric will be crucial for the company to meet its newly raised profit targets.
• It is prudent to analyze the divergence between statutory and adjusted profit figures to understand any one-off charges or non-core items impacting the bottom line, thereby gaining a clearer view of underlying earnings quality.