Tesco has warned its full-year results will be lower than expected as profits plummet and ongoing inflationary pressures continue.
However, the UK’s largest supermarket has continued to focus on investing in growth as it raises staff pay and announces price freezes across hundreds of product lines.
In the six-month period ending 27 August, Tesco reported a fall in profit before tax to £413 million, down 64% from £1,143 million in the same period last year. Sales increased by 6.7% to £32.5 billion despite the drop in profits, as the supermarket giant pledged to “support customers through relentless focus on value”.
The big four grocer also said it saw customers switching from branded items to own-brand goods due to rising inflation and the ongoing cost-of-living crisis. Despite this, like-for-like sales increased slightly by 0.7% year-on-year, a 10% rise above pre-pandemic levels.
Tesco is expecting to deliver accelerated savings this year of £500 million to mitigate cost inflation.
As a result, it now expects an annual underlying retail earning of between £2.4 billion and £2.5 billion – the lower end of previous guidance for between £2.4 billion and £2.6 billion and a drop from the £2.7 billion reported in the previous year.
This comes as Tesco employees are set to see an 8% increase in pay this year, as pay increases by 20p per hour, the third time in 13 months, to £10.30 and £10.98 in London.
The supermarket giant also added that it would also be freezing prices on more than 1,000 products until next year.
Tesco UK CEO Jason Tarry said: “We know times are tough for many customers right now, particularly as we head into the winter months.
“We hope this extended price-lock commitment gives our customers the certainty of knowing that over a thousand household favourites will stay at the same great price for months to come – helping them budget when they need it most”
Household brands that will benefit from the price lock include Heinz, Tilda, Robinsons and Nescafé.
CEO Ken Murphy said: “Customers are seeking out the quality and value of our own-brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out.
“As we look to the second half, cost inflation remains significant, and it is too early to predict how customers will adapt to ongoing changes in the market.
“Despite these uncertainties, our priorities are clear. We have the right long-term strategy and we will continue to balance the needs of all of our stakeholders.”
He concluded: “Most importantly, we will stay focused on delivering value for our customers and supporting them in every way we can.”
