Tesco raises profit outlook floor after first-half beat

By James Davey

LONDON, Oct 8 (Reuters) - Tesco, Britain's largest food retailer, raised the lower end of its full-year profit outlook on Thursday after delivering a better-than-expected 6.5% increase for its first half, despite summer heatwaves that weighed on sales across the industry.

Shares in Tesco were up 4%, extending 2026 gains to 12%, after the group also increased its share buyback programme by £200 million ($264 million) to £950 million, citing its strong balance sheet and cash generation.

The retailer, which dominates the UK grocery sector with a market share of 28%, reported adjusted operating profit of £1.783 billion for the 26 weeks to August 29, on sales, excluding Value Added Tax and fuel, up 2.0% to £33.8 billion.

UK like-for-like sales for the second quarter rose 1.3%, slightly below analysts' average forecast, having been up 1.8% in the first quarter.

'RELATIVELY RESILIENT' CONSUMER CONFIDENCE

Tesco said consumer confidence remained "relatively resilient" in the first half, although tensions between major political powers continued to create uncertainty.

Monthly industry data has shown Tesco lost a small amount of market share in the second quarter. However, it was up against a tough comparative performance in the same quarter last year when UK like-for-like sales rose 4.6%, helped by disruption at competitors Marks & Spencer, the Co-op and Asda.

"We are lapping very strong market share gains last year, so we always expected to be giving back a bit of share over the summer," CEO Ken Murphy told reporters.

He said Tesco entered the second half "in great shape".

"We've got a very strong plan for Christmas and for the festive season generally, so I'm feeling optimistic and positive about our second half performance."

Tesco now forecasts adjusted operating profit of £3.15 billion to £3.3 billion for its year to end-February 2027, compared with previous guidance of £3.0 billion to £3.3 billion and £3.152 billion made in 2025/26.

Prior to Thursday's update analysts were on average forecasting £3.249 billion.

Sainsbury's, Britain's second-largest grocer, held talks with smaller rival Morrisons about a merger earlier this year but walked away, according to media reports on Monday.

"In terms of consolidation in the industry, we don't dwell too much on that," said Murphy. "I don't overthink possible permutations and combinations."

($1 = 0.7577 pounds)

(Reporting by James Davey; editing by Sarah Young, Paul Sandle and Louise Heavens)