Tesco boss Ken Murphy offered cautious hope on the cost of living, saying he sees “encouraging early signs” of inflation starting to ease.
But while he pointed to the supermarket cutting prices for milk and pasta lately, he said the journey to slow down price growth was “not all straightforward”, with prices still rising quickly for most goods.
“We are very conscious that many of our customers continue to face significant cost-of-living pressures and we have led the way in cutting prices on everyday essential items,” he said. “There are encouraging early signs that inflation is starting to ease across the market and we will keep working tirelessly to ensure customers receive the best possible value at Tesco.”
But he drew a line between price hikes that came from rapid changes in commodity prices and those that were due to more “structural” issues.
“Where there has been commodity inflation, like in dairy and cereals, you are seeing us bring prices down,” he said.
“In other areas, you are seeing some persistent inflation. It’s not all straightforward.”
Finance boss Imran Nawaz added that the supermarket was not going to bring down the cost of products at the expense of profit margins.
“Where we have seen some disinflation we have passed it on, but while protecting our margin,” he said.
Supermarkets have come under pressure for their prices as customers struggle to deal with rising shopping bills. Last month, reports claimed Downing Street was drawing up plans to encourage them to bring in voluntary price controls for essentials.
Murphy’s comments came as the supermarket giant said it expects profits of between £1.4 billion and £1.8 billion this year.
Sales came to £13.8 billion, up 8.8%, with £10.8 billion of that from the UK. The projected profit, meanwhile, is in line with April’s expectations and last year’s profits.
Chris Beckett, head of equity research at Quilter Cheviot, said the results showed that criticism of supermarkets was overblown.
“Tesco’s results this morning highlight the fact that this inflationary environment is not one that benefits the food retailers, despite the accusations of price gouging,” he said. “Yes, UK Food and Drink inflation is around 20%, but this has only led to an increase in sales for Tesco of 9%, which suggests there has been a decline in volumes at the supermarket.”
The Finest premium line was among the best performers for Tesco, with sales here up 14.9%. Tesco said a large number of customers have switched from higher-end supermarkets like Waitrose and M&S to Tesco’’s finest offering amid the cost-of-living crisis.
“What the supermarket is seeing is customers cutting back on the amount they are buying, but trading this in for quality,” Beckett said.
John Moore, senior investment manager at RBC Brewin Dolphin, said: “Tesco is trading very well in the current environment, as consumers look for value in their shopping baskets.
“Cashflow remains strong and profits are expected to remain in line with where they were during a bumper 2022, with the bank and its wholesale offering Booker also making meaningful contributions to the group’s overall growth. Tesco is strengthening its grip on its position as the UK’s top supermarket and, with share buybacks continuing and management generally keeping the house tidy, it is in good shape – particularly with life likely getting tougher for its leveraged rivals, like Asda and Morrisons.”
Shares dipped by 2p to 262.5p.
