Tesco widens profit guidance on Iran war uncertainty

(Sharecast News) - UK supermarket giant Tesco on Thursday widened guidance for 2026/27 to reflect increased uncertainty caused by the US-Israel war on Iran. British consumers have been caught in a cost-of-living squeeze since the Covid -19 pandemic and Russia's war on Ukraine as they endured higher prices, stagnant wage growth and rapidly shrinking product sizes - coined "shrinkflation" by critics.

The company said it was now targeting adjusted operating profit of between £3.0bn and £3.3bn after reporting a 0.8% rise in adjusted operating profit to £3.15bn, beating estimates of £3.10bn, according to a company-compiled consensus.

Sales excluding VAT and fuel rose 6.4% to £66.58bn.

"Much will depend upon the duration of the conflict and in particular, the potential implications for UK households and the economy more broadly," Tesco said in a statement.

AJ Bell head of markets Dan Coatsworth, said it was "inevitable" that the cost of food and drink would rise as a result of the war "meaning consumers will have to think harder about what they buy and whether they need to put less in their basket or opt for cheaper alternatives".

"The big unknown is for how long this situation might last and that creates uncertainty for Tesco's future earnings. This backdrop has overshadowed a decent set of results from Tesco as the focus is on what might happen next, not what it has just achieved," he said.

"Tesco continues to gain market share which is remarkable considering the ferocity of competition in the grocery sector. It is managing to appeal to both value seekers and people happy to pay a little more for fancy items. Sainsbury's has similar momentum but isn't firing on all cylinders, as its general merchandise interests remain a drag on the business. Tesco's clothing sales look good, and even the wholesale arm Booker seems to be finding its feet after a wobbly patch."

He added that the supermarket chain "will want to keep sales volumes high and might accept a slightly lower profit margin if it means beating competitors on price during a more challenging environment".

Reporting by Frank Prenesti for Sharecast.com

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