Tesco (TSCO) H2 25/26 earnings summary

Executive summary

• Achieved highest market share in a decade and increased customer satisfaction, with profit and free cash flow exceeding guidance.

• Strategic focus on price, quality, and service investments drove market share gains in the UK and Ireland, supported by innovation in product ranges and digital capabilities.

• Leveraged data, digital, and AI to unlock long-term growth opportunities and operational efficiencies.

• Expanded value proposition with 3,000 everyday low prices, 10,000+ Clubcard prices, and 600+ Aldi Price Match lines, alongside significant product innovation.

• Returned £2.4bn to shareholders via dividends and buybacks, including proceeds from the sale of Banking operations.

Financial highlights

• Group sales grew 4.3% at constant exchange rates to £66.6bn, with like-for-like sales up 3.5% across all segments.

• Adjusted operating profit rose 0.6% to £3,152m; headline EPS up 6% to 29.0p, aided by share buybacks.

• Free cash flow reached £1,957m, up 11.8% year-on-year, exceeding guidance.

• Dividend per share increased 5.8% to 14.5p, maintaining ~50% payout ratio.

• Statutory profit after tax was £1,787m, up from £1,604m last year.

Outlook and guidance

• Upgraded medium-term free cash flow guidance to £1.5bn–£2bn per year.

• FY guidance for group adjusted operating profit set at £3bn–£3.3bn, reflecting uncertainty from Middle East conflict.

• Capital expenditure expected at ~£1.6bn, with focus on high-return projects; £750m further share buyback announced.

• Targeting net debt/EBITDA of 2.8–2.3x and a progressive dividend policy at c.50% payout ratio.