No-moat Tesco reported interim 2024/2025 results with top-line profits driven by volume growth as the inflationary environment normalized.
Retail like-for-like sales were up 2.9%, with UK sales up 4.0%, and Ireland sales up 4.7%.
Booker sales were down 1.9%, with the decline in tobacco and Best Food Logistics volumes offsetting strength in catering.
From a channel perspective, all formats were up, led by digital growth of 9.3%.
Key Morningstar Metrics for Tesco
• Economic Moat: None• Fair Value Estimate: GBX 316.00• Forward Dividend Yield: 3.41%• Morningstar Rating: 2 stars• Sector: Consumer Defensive• Morningstar Uncertainty Rating: Medium
Within the UK, market share rose 62 basis points year over year to 27.8% with strong performance particularly from large stores.
Ireland saw market share gains as well, increasing 88 basis points year over year to 25.3%.
We were also pleased to see Central Europe sales up 0.6%, signaling a gradual improvement in consumer sentiment.
Operating profit was up 15.6% from the prior-year period, implying a margin of 4.7%, primarily driven by retail operations.
Tesco Stock vs. Morningstar Fair Value Estimate
The combined UK and Ireland operating profit was up 9.8% and Central Europe operating profit was up 6.5%.
Due to stronger-than-expected performance in the first half, management raised its fiscal 2025 outlook for retail adjusted operating profit to £2.9 billion, up from £2.8 billion.
The firm continues to expect to generate retail cash flow of £1.4 billion to £1.8 billion, in line with medium-term guidance.
Given that we were previously ahead of operating profit guidance, we maintain our 316p fair value estimate.
We reiterate that Tesco is one of the best-positioned grocers in our European coverage.
