Tesco has reaffirmed its optimistic outlook for fiscal 2025 following impressive sales growth in the third quarter, marking what the company has described as its "biggest ever Christmas." The British grocery and retail behemoth declared on Thursday that it is pursuing a retail adjusted operating profit target of 2.9 billion pounds sterling for fiscal 2025.
Additionally, Tesco reiterated its medium-term guidance for retail free cash flow, estimating it will range between 1.4 billion pounds and 1.8 billion pounds, which encompasses operating profit contributions from Tesco Bank. For the 19 weeks leading up to January 4, Tesco reported year-over-year like-for-like sales growth of 3.1%, with a 2.8% increase in sales during the fiscal third quarter.
During the Christmas season, sales surged by 3.8%, bolstered by the introduction of over 350 new or enhanced holiday-specific products. Chief Executive Ken Murphy attributed the robust performance to significant investments made by Tesco, positioning it as the UK's most affordable full-line grocer for more than two years.
Murphy emphasized the improvements in quality across all product ranges, noting that more than half of this year's Christmas offerings were either new or improved, all while delivering an exceptional customer experience both in-store and online. The support of an additional 28,000 colleagues over the Christmas season also played a role in this success. In terms of market presence, Tesco achieved its highest market share since 2016, reaching 28.5%, primarily attributed to an enhanced brand perception.
Analyzing regional performances, Central Europe saw a leading sales increase of 3.5%, while the UK and Ireland followed closely with a 3.1% rise. Tesco credited this growth to increased volume sales and enhanced customer satisfaction across all markets. Analysts from RBC Capital Markets highlighted that Tesco's performance over the 19 weeks surpassed expectations, deeming the company as a "best-in-class player" in the UK food retail sector.
They noted that Tesco has experienced significant margin expansion in recent years, with opportunities for further small gains in the medium term due to growth in margin-accretive areas, including Retail Media, Clubcard, and the Finest premium range. RBC analysts are optimistic about Tesco's continued cash generation, which, combined with its robust balance sheet, positions the company to maintain its trajectory of additional cash returns.
Despite this strong performance, the stock experienced a nearly 2% decline during mid-morning trading..