Tesco lifts outlook on profit and cash gains

Tesco (TSCO.L) increased the lower end of its full-year adjusted operating profit guidance, setting a new range of £3.15bn–£3.30bn. The upgrade follows a stronger first half, in which group adjusted operating profit for the 26 weeks to 29 August rose 6.5% to about £1.78bn. Over the same period, group sales excluding VAT and fuel were around £33.8bn, up roughly 2% year-on-year.

Management described consumer confidence as relatively resilient despite ongoing geopolitical tensions. Within its UK business, sales at established stores increased 1.5%, supported by solid food sales. At the same time, the Booker wholesale arm faced challenges, with sales declining 2.6% in the period.

Online grocery continued to be a key growth driver, with UK online sales up about 8% in the half. Tesco’s (TSCO.L) rapid-delivery service, Whoosh, expanded sales by around 37%. Whoosh is described as being on track for more than £500m of sales this year, underlining the importance of quick-commerce formats in the group’s channel mix.

The company also reported an increase of 9% in revenue from its premium own-label Finest range. This performance indicates demand across both value-oriented and higher-end offerings within Tesco’s product portfolio. Online strength and a broader mix of products contributed to the group’s overall sales momentum.

Tesco reported stronger cash generation, with free cash flow of around £1.57bn for the half, an increase of roughly 21%. On the back of this improvement, the company raised its current-year share buyback programme to about £950m, up from about £750m. The higher buyback reflects a greater return of excess cash to shareholders alongside the improved profit outlook.

Management emphasised continued investment in digital capabilities to support future efficiency and growth. The group highlighted broader use of artificial intelligence across the business. Examples include a meal-planning assistant that was tested from April and launched for customers in September, aimed at simplifying shopping journeys and enhancing engagement.

Alongside its financial results, Tesco noted that online trade remained strong, helping to offset weaker performance in some wholesale activities. The company is increasingly using AI tools to optimise customer-facing services and internal operations. These initiatives sit alongside its ongoing focus on value and range, as seen in the performance of its Finest products.

Overall, the combination of higher first-half profit, resilient sales growth, and stronger free cash flow underpins Tesco’s decision to raise guidance and increase capital returns. The group’s emphasis on rapid delivery, online grocery, and digital tools positions these areas as central to its current strategy.