Tesco raises profit forecast as online sales and Finest range grow

Tesco has upgraded its annual profit forecast after a surge in online shopping and strong demand for its premium food range helped the UK's largest supermarket chain deliver a robust first-half performance.

The retailer now expects to post an annual underlying retail operating profit of between £3.15 billion and £3.3 billion. The new range is a tighter and more optimistic outlook than its previous guidance, which had simply targeted profits of "at least £3 billion." However, because of ongoing cost pressures, a finish at the very bottom end of the new range would still represent a slight fall in profits compared to the previous year.

For the first six months of its financial year, Tesco’s overall sales rose by 2% to £33.8 billion, while its underlying operating profit climbed by 6.5% to £1.8 billion.

Chief Executive Ken Murphy attributed much of this growth to two key areas: an 8% jump in online transactions and a 9% rise in revenues from the supermarket’s premium Finest range, indicating that many households are still willing to pay extra for upmarket treats. At Tesco’s established UK stores, like-for-like sales grew by 1.5%, driven almost entirely by steady grocery shopping.

The performance was not strong across every division, however. Tesco’s Booker wholesale arm, which supplies corner shops, pubs, and restaurants, continued to struggle, with sales falling by 2.6% over the half-year period.

The supermarket group said that British consumer confidence has remained "relatively resilient" so far this year, despite broader geopolitical tensions that "continue to create uncertainty." Earlier this year, Tesco warned investors that its profits could take a hit from economic disruption linked to the conflict in Iran, which began in late February. Since then, the broader economic picture has shown signs of stability, with official estimates for UK economic growth in the second quarter of the year recently being revised upwards.

To offset inflation and protect its profit margins, Tesco is increasingly leaning on artificial intelligence to cut costs behind the scenes. The group has integrated AI systems to make the replenishment of stock on shop shelves more efficient and to lower energy use across its estate. It has also introduced AI to the customer-facing side of the business: in September, Tesco launched an AI-powered meal planning assistant for shoppers, following a trial with 280,000 staff members that began in April.

"We remain focused on helping customers get the best possible value from their weekly shop," the company said, noting that price competition remains fierce.