Tesco PLC

For the year, Tesco reported group sales growth of 4.3% at constant exchange rates and like-for-like sales growth of 3.5%. Group adjusted operating profit was GBP 3.15 billion, up 0.6% at constant rates and 0.8% at actual exchange rates, while headline EPS rose 6% year over year to 29p. Free cash flow was GBP 1.96 billion, up 12% year over year and above the top end of guidance; net debt including capitalized leases was GBP 10.56 billion and net debt-to-EBITDA was 2.1x. For the year ahead, management expects group-adjusted operating profit of GBP 3 billion to GBP 3.3 billion and free cash flow within the upgraded medium-term range of GBP 1.5 billion to GBP 2 billion per year. Capital spending is expected to be around GBP 1.6 billion next year, and Tesco announced a further GBP 750 million share buyback.

Ken Murphy said the year reflected stronger customer value, better quality and service, and continued gains in satisfaction and market share despite intense competition. He framed the strategy as staying focused on core food while building additional, capital-light revenue streams such as retail media, marketplace, pharmacy, mobile, and financial services, all supported by Clubcard, data, AI, and dunnhumby. His tone was confident but pragmatic: the company is investing more, but only in high-return areas, and it wants to keep using excess cash to reinforce the core while returning surplus capital to shareholders.

Imran Nawaz highlighted that the business overdelivered versus prior expectations because investments in price, quality, range, and hours generated better returns than anticipated. He cited GBP 535 million from Save to Invest, GBP 385 million of working capital inflow, GBP 1.5 billion of cash CapEx, and GBP 153 million of total adjusting items, including GBP 78 million of acquired intangible amortization and GBP 53 million of impairment charges. He said the balance sheet remains strong at 2.1x net debt-to-EBITDA, proposed a final dividend of 9.7p for a full-year dividend of 14.5p, and said normal working capital should be roughly over GBP 100 million of inflow in an average year. He also said leverage may move back toward 2.3x over time, but he is comfortable at 2.1x given the current uncertainty.

Analysts focused on why profit beat prior expectations, the wider profit and cash flow guidance ranges, and whether management could quantify the size and profitability of newer businesses like retail media and marketplace. Management said the upside versus plan came from better-than-expected returns on investment in value, quality, range and labor, which supported market share gains and volume growth. On guidance, they said the wider range reflects uncertainty from the Middle East conflict, but they have not yet seen a meaningful change in consumer behavior. On newer businesses, Ken Murphy said they are meaningful contributors overall and are intended to fund reinvestment into core food, while some areas such as Marketplace are still in investment mode and may not contribute materially for a few years.