Tesco (LON: TSCO) shares experienced a lift, trading around 2.9% higher on Thursday morning despite broader market anxieties fueled by ongoing conflict in the Middle East and an uncertain economic outlook.
The positive movement follows the release of the company’s full-year results, which demonstrated sales growth and a commitment to shareholder returns.
The grocery giant reported a 4.6% increase in sales (excluding VAT and fuel) to £66.588 billion and a 6.0% rise in adjusted diluted earnings per share to 29.0p. Free cash flow also saw a healthy jump of 11.8% to £1.957 billion. Statutory diluted EPS for the 53 weeks grew by 16.9%.
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Despite the positive headline figures, Tesco acknowledges the cloud of uncertainty created by geopolitical events. The company is providing a wider range of guidance for the upcoming financial year, anticipating adjusted operating profit between £3.0 billion and £3.3 billion.
Tesco’s commitment to returning value to shareholders is evident in the announcement of a new £750 million share buyback program, to be completed by April 2027. In addition to the buyback, the company is proposing a final dividend of 9.7 pence per share, bringing the full-year dividend to 14.5 pence, a 5.8% increase.
Key Drivers:
- Customer Focus: Investments in value, quality, and service, including tripling the number of products on Everyday Low Prices and matching Aldi prices on over 600 lines.
- Strategic Partnerships: Leveraging data and insights to build new revenue opportunities with suppliers.
- Operational Efficiencies: The “Save to Invest” program continues to deliver substantial savings, funding price reductions and colleague pay increases.
AskTraders Takeaway: The share price increase reflects market confidence in Tesco’s ability to navigate a challenging environment. The buyback announcement is a strong signal of financial strength and commitment to shareholder value and may attract further investment.
CEO Ken Murphy stated, “We are committed to doing whatever we can to help keep down the cost of the weekly shop, and with the conflict in the Middle East creating further uncertainty for consumers and the economy more broadly, that commitment matters more than ever.”
Analyst Summary: Bull and Bear Cases
Bull Case:
- Reported a 4.6% increase in sales and a 6.0% rise in adjusted diluted EPS.
- Announced a new £750 million share buyback program, signaling financial strength.
- Increased the full-year dividend by 5.8%, demonstrating commitment to shareholder returns.
- Strong operational performance with an 11.8% increase in free cash flow and ongoing “Save to Invest” efficiencies.
Bear Case:
- Broader market uncertainty fueled by geopolitical conflict in the Middle East.
- A cautious outlook is reflected in the wider range of profit guidance for the upcoming year.
- Potential for a challenging economic environment to impact consumer spending and company performance.
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