© Reuters. File photo: A full view of the Tesco Extra store sign in Warrington, England on January 13, 2022. REUTERS/Jason Cairnduff
James Davey
LONDON (Reuters) – Britain’s largest retailer Tesco (OTC:) does not believe inflation has peaked, so it will focus on offering customers more valuable deals in January, it said. said, preparing for a tough 2023 after shoppers spend big on Christmas.
Consumers weren’t holding back in December, according to an update to the deal: After two years of pandemic restrictions, families were hosting large Christmas gatherings rather than going out to save cash. I treated myself at home.
For Tesco, UK sales rose a better-than-expected 4.3% in the quarter to 26 November, up 7.2% in the six weeks to 7 January, making it one of the stronger performers on the boulevard. I was. , rivals Sainsbury’s and discounters Aldi and Lidl.
But the sector is now gearing up for a difficult year, with surges in energy and property costs straining consumer budgets and their confidence nearing record lows.
“This January we are focusing more on value because we believe value is important to our customers,” CEO Ken Murphy said at a press conference.
As for inflation, “I don’t know if it’s peaked yet. I expect it to peak by the middle of the year and then go back down.”
Industry data showed the grocery sector as a whole achieved record celebratory sales, but growth was driven by higher prices rather than higher volumes.
Tesco, with a 27.5% share of the UK grocery market, has “good momentum” heading into 2023 and says it “will remain competitive and stay strong relative to the market despite the difficult conditions ahead.” We expect to achieve good results,” he said.
aggressive pricing
Tesco has benefited from the popularity of its ‘Clubcard Price’ loyalty program, which offers schemes to match prices with Aldi on over 600 products and cheaper deals.
Tesco, like Sainsbury’s, is absorbing some of the higher costs rather than passing them all on to consumers.
Analysts welcomed the firm trading, but Sophie Rand Yates, chief equity analyst at Hargreaves Lansdowne, said aggressive pricing could hurt profit margins.
“The tug-of-war between pricing and volume is clearly yielding good results, which is why profit forecasts are repeating, but it’s not an ideal situation for big names in the industry,” she said. said.
The Group maintains its 2022-23 retail adjusted operating profit forecast of between £2.4 billion and £2.5 billion ($2.9 billion to $3 billion), down from £2.65 billion in 2021-22. bottom.
We expect retail free cash flow of at least £1.8bn and a profit from Tesco Bank of £120m to £160m.
Tesco’s stock, which fell 17% last year, is up 7% last month. It was down 0.5% in early trading.