By Elena Vardon


Tesco expects profit to rise in the year ahead, signaling improving consumer demand as inflation tapers off, the U.K.'s largest grocer by market share said as it launched a 1.0 billion-pound ($1.27 billion) share buyback.

The supermarket chain expects to make at least 2.8 billion pounds ($3.55 billion) in retail adjusted operating profit--its preferred metric, which strips out exceptional and other one-off items--in fiscal 2025, plus around GBP80 million from the retained business of its banking branch, insurance and money services.

This compares with views of GBP2.99 billion for the group as a whole, taken from a company-compiled consensus, and GBP2.83 billion in the previous fiscal year ended Feb. 24. Analysts view the new guidance as roughly consistent with expectations, with room for upgrades as the year progresses.

"We have strong momentum in our business, and are encouraged by signs of improving consumer sentiment," said Chief Executive Ken Murphy.

The outlook comes as shop-price inflation across the U.K. loses steam, supporting customer demand and volumes. Grocers last year battled higher costs and tried to prop up demand among cost-conscious consumers, including through loyalty program discounts.

"Customers are choosing to shop more at Tesco, which is reflected in growing market share as they respond to the improvements we've made," Murphy said. The group has a 27% share of the U.K. grocery market and while closest peer Sainsbury's has 15%, according to the latest figures from data provider Kantar.

"Inflationary pressures have lessened substantially," according to Murphy. Management expects low-single digit inflation to continue for the rest of the year.

For fiscal 2024, the company said revenue including fuel rose 4.4% to GBP68.19 billion on volume growth in the U.K. and Ireland where it lured consumers with lower prices.

The retailer plans to buy back GBP1.0 billion of its shares over the next 12 months, it said. This is made up of a GBP750 million program plus--in line with the past two years--on top of a GBP250 million special dividend using proceeds from the disposal of its Tesco Bank operations to Barclays. The deal was outlined in February and is set to close in the second half of the year.

It also proposed a 8.25 pence a share final dividend, which takes the full-year payout to 12.10 pence compared with 10.9 pence a year prior.

Shares in London climbed 4.4% to 300 pence at 1050 GMT, after hesitating in early morning trade, and were the best performer of the FTSE 100 index which was up 0.62%. The stock has gained 13.6% over the past 12 months.


Write to Elena Vardon at elena.vardon@wsj.com


(END) Dow Jones Newswires

04-10-24 0706ET