Tesco raises the floor of its profit forecast and adds £200 million to its buyback as profit outpaces sales

Tesco raised the bottom of its full-year profit range on Thursday and said it would spend an extra £200 million buying back its own shares this year, after cost savings and a richer mix of products let first-half profit grow far faster than sales.

Adjusted operating profit for the 26 weeks to Aug. 29 rose 6.3% at constant exchange rates to £1.78 billion, or 6.5% at actual rates. Group sales, excluding VAT and fuel, rose 1.6% at constant rates to £33.78 billion, and like-for-like sales, which strip out the effect of new stores, rose 1%. Under standard accounting, operating profit was £1.71 billion and pretax profit rose 11.5% to £1.46 billion. Adjusted diluted earnings per share rose 12.2% to 17.3 pence, helped by a smaller share count after years of buybacks and last year's return to shareholders of the proceeds from selling its banking business. Statutory diluted earnings rose 17.4% to 16.7 pence.

Analysts had expected adjusted operating profit of about £1.73 billion, according to a consensus figure reported by Proactive Investors. Bernstein analyst Richard Trainor said, in comments reported by The Grocer, that like-for-like sales fell slightly short, which he put down to lower inflation in the UK and falling prices in central Europe, but that margins were strong and operating profit, earnings per share and free cash flow all came in ahead of forecasts.

"Against an uncertain external backdrop, we have continued to invest in giving customers the very best value for money," Chief Executive Ken Murphy said in the results statement.

What changed in the forecast

Tesco now expects adjusted operating profit of £3.15 billion to £3.3 billion for the year to February 2027, up from the £3 billion to £3.3 billion range it gave in April. Chief Financial Officer Imran Nawaz told analysts the new range means "narrowing to the upper half of our previous range." The top of the range did not move.

That leaves a cautious second half. The range implies adjusted operating profit of £1.37 billion to £1.52 billion in the final six months, after £1.78 billion in the first. On the call, UBS analyst Sreedhar Mahamkali said even the top end implies profit growth of less than 3% in the second half. Nawaz said the first half "played out better than we anticipated when we set out guidance back in April," but pointed to a UK budget, Christmas and rising household energy bills ahead, and said Tesco wants "the flexibility to invest wherever we see opportunities."

Cash and the buyback

Free cash flow rose 21% to £1.57 billion, but about £250 million of that came from the timing of payroll payments and will reverse in the second half. Tesco kept its forecast of £1.5 billion to £2 billion in free cash flow for the year.

The buyback for the year rises to £950 million from £750 million. Tesco had repurchased £550 million of shares between April 16 and the market close on Oct. 7 and expects to finish the programme by April 2027. Nawaz called the increase "a sign of confidence in the sustained cashflow generation" but said the board sets the buyback each April: "I treat every year as a new start." Tesco also raised planned capital spending for the year to about £1.7 billion from about £1.6 billion.

Net debt fell by £526 million from February to £10.04 billion, about two times earnings before interest, tax, depreciation and amortization. The interim dividend rises 5.2% to 5.05 pence a share, payable Nov. 20 to shareholders on the register on Oct. 16.

Where the profit came from

The UK and Ireland, by far the largest part of the group, produced £1.56 billion of adjusted operating profit, up 6% at constant rates. Tesco credited a better mix of products, savings from its Save to Invest cost programme and newer income streams such as its Tesco Media advertising business and Whoosh rapid-delivery service, which together more than covered spending on prices and higher operating costs. Save to Invest produced £251 million of savings in the half, and the company said it is on track for £500 million this year.

Sales of the premium Finest range rose 8.9% in the UK, UK online sales rose 8.4% to £3.7 billion, and Whoosh sales grew about 37%. In central Europe, adjusted operating profit rose 38.4% at constant rates to £63 million.

Booker, the wholesale arm, was the weak spot. Its profit was flat at £163 million as like-for-like sales fell 2.6%, pulled down by an 8.9% drop in tobacco sales and the exit of a lower-margin national account in August 2025. Fuel sales, which Tesco leaves out of its headline sales figure, rose 19.7% at constant rates to £3.58 billion, mostly because higher oil prices pushed up pump prices.

The UK sales picture

UK like-for-like sales rose 1.5%, with food up 2.4%. Tesco's share of the UK grocery market, as measured by Worldpanel, slipped 0.24 percentage point to 27.8%, which the company said reflected a demanding comparison with a year earlier, when disruption at competitors helped it gain share. Over two years, its share is up 0.23 point.

Murphy told analysts the UK market is "probably one of the most competitively intensive certainly in Europe." Asked whether the sector was ripe for more consolidation, after recent headlines involving Sainsbury's and Morrisons, he said such scenarios were "largely hypothetical" and do not change Tesco's strategy.

How the shares traded

Tesco shares closed at 500.4 pence in London on Thursday, up 5.2%, after touching 512.6 pence, a 52-week high. The FTSE 100 index slipped 0.2%.