Tesco (TSCO) H1 26/27 earnings summary

Executive summary

• Record customer satisfaction accompanied growth in sales, adjusted operating profit, EPS and free cash flow, with continued investment in customer value, quality, service and capabilities.

• Profit growth reflected improved mix, Save to Invest savings and newer income streams; H1 performed better than anticipated, supporting full-year profit guidance in its upper half.

Financial highlights

• Sales excluding fuel were £33,776m, up 1.6% at constant exchange rates; revenue including fuel rose 3.7% at actual rates to £37,353m.

• Adjusted operating profit was £1,783m, up 6.3% at constant rates and 6.5% at actual rates; operating margin expanded 13 bps to 4.8%.

• Adjusted profit after tax rose 6.8% to £1,101m; statutory profit after tax increased 11.8% to £1,062m, reflecting lower adjusting items.

• Adjusted diluted EPS grew 12.2% to 17.3p; statutory diluted EPS increased 17.4% to 16.7p, helped by favourable fair-value movements in financial instruments.

• Free cash flow was £1,570m, up 21.0% YoY, including a ~£250m net payroll-timing benefit that reverses in H2; underlying cash flow was similarly strong to H1 last year.

Outlook and guidance

• FY 26/27 adjusted operating profit guidance increased from £3.0bn–£3.3bn to £3.15bn–£3.30bn, with expectations in the upper half of the range.

• FY free cash flow guidance remains £1.5bn–£2.0bn; capex is expected at ~£1.7bn, versus prior guidance of ~£1.6bn.

• Save to Invest delivered £251m of H1 savings; the full-year target remains £500m.

• Adjusted net finance costs are expected to be ~£575m and FY effective tax rate ~27%; plans retain flexibility for customer investment amid the budget, higher energy bills and Christmas demand.