Tesco To Post Bumper Profits As Analysts Look For Insight On Inflation And Price Moves

Tesco will reveal its annual results on Wednesday with the City keen to hear how the UK’s largest grocery retailer is tackling soaring costs and whether it has any further plans to support shoppers during the cost-of-living crisis.

Last year, the supermarket’s operating profits fell by a fifth to £1.7bn after it paid back business rates relief given during the height of the pandemic. Analysts expect this number to soar after Tesco said in January that its retail profits would be at the top end of a £2.5bn to £2.6bn range.

Tesco has been gaining market share from rivals such as Morrisons and Asda in recent months as it uses its huge buying power to keep prices down and offer attractive deals through its Clubcard scheme.

However, with inflation accelerating and the cost of living crisis worsening, Tesco could face pressure to reduce prices further if cash-strapped consumers continue to turn to discounters to save money.

Earlier this year, the group’s Chief Executive Ken Murphy promised an “unwavering commitment to value” as the firm grapples with soaring costs. He revealed in January that Tesco’s input costs were climbing at around 5% annually, up from between 2% and 3% usually.

However, Russia’s invasion of Ukraine has since driven up energy and commodity costs even more and analysts will be looking for the latest estimate of Tesco’s inflation.

Danni Hewson, AJ Bell’s financial analyst, said Tesco may have some “pricing power” against cost inflation as a key provider of consumer staples and given its domination of the market.

He added: “At a time when inflation is a key concern, and customers will start to trade down or even buy less, this could be a useful part of Tesco’s armoury when it comes to driving profits and cash flow and protecting profit margins.”

NAM Implications:
  • The key issue re Tesco future pricing is to what extent Tesco can afford to match the discounters…
  • …should Aldi & Lidl decide to run at a loss in the UK at the expense of global profitability…
  • …in order to grow share at the expense of the mults.
  • Watch this space!

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