No-moat Tesco TSCO finished its fiscal year in February 2025 with sales growth of 3.5% and total revenue of £69.9 billion, in line with company-compiled consensus. Tesco increased market share by 60 basis points, leading the UK grocery market with a 28% share according to Kantar, while the Irish market share gained around 30 basis points to 24%.
Despite market share gains, Tesco released the next fiscal year’s operating profit guidance as lower than the year just ended amid a rising pricing war across local grocers. This sent the share price down nearly 7% at the market opening on April 10. We see this market reaction as overly pessimistic given Tesco’s solid performance and recent market share gains. We maintain our 316p fair value estimate and view shares as fairly valued.
Tesco UK Sales Grow
UK like-for-like sales grew 4% for the reported year largely driven by 4% growth in large stores sales and 10% in the online channel, offset by a decline of 0.2% in the convenience channel. Tesco continues to invest in digital capabilities; however, despite online sales growth, the channel still represents a low-teens share of overall UK sales.
Irish sales grew by 5.6%, including 1% coming from new stores opening. Booker reported a 2% sales decline due to continued weakness in fast-food and tobacco markets. Central Europe had 2.2% like-for-like sales growth mostly volume driven. All geographies delivered operating margin expansion, contributing to a 33-basis-point increase in the group’s margin that stands at 4.5%.
For the upcoming year management guided for operating profit in the range of £2.7 billion-£3.0 billion, down from £3.1 billion in the year just ended. The outlook reflects competition, including Britain’s third-largest grocer Asda’s announcement of wide-ranging price cuts.
Tesco announced a full-year dividend of 13.7 pence, a 13% increase from the previous year and aligned with a 50% payout ratio target. Share repurchases of £1.45 billion are expected for fiscal 2026.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
