* First-half core retail profit up 16.6%
* Forecasts full-year retail profit of 2.5-2.6 bln stg
* Launches 500 mln stg share buyback
* Says buyback not designed to ward off bid
* Shares rise 4.4%
(Adds CEO comments)
By James Davey
LONDON, Oct 6 (Reuters) - Tesco, Britain's biggest
retailer, raised its full-year earnings forecast on Wednesday
after the unmatched scale of its store and online operations
helped it outperform rivals in the first half and beat
expectations with a 16.6% jump in profit.
British retailers are battling supply chain disruptions and
labour shortages. Supermarkets also face tough comparisons
against record sales during COVID-19 lockdowns.
Tesco, however, increased sales in the period.
"We've had a strong six months; sales and profit have grown
ahead of expectations, and we've outperformed the market," CEO
Ken Murphy said.
"With various different challenges currently affecting the
industry, the resilience of our supply chain and the depth of
our supplier partnerships has once again been shown to be a key
asset."
He told reporters the company "maintained great
availability" during the half.
Tesco said the strong performance had enabled it to cut net
debt by 1.7 billion pounds ($2.3 billion) since February, and it
could now afford to start a multi-year share buyback, with the
first 500 million pounds to be bought by October 2022. It also
paid an interim dividend of 3.2 pence, in line with a year ago.
Tesco shares were up 4.4% at 1015 GMT, taking 2021 gains to
14.3%.
Murphy denied the buyback was a tactic to ward off potential
private equity bidders.
"This isn't defensive by any means, this is completely, as
far as we're concerned, part of business as usual," he
said
Morrisons, Britain's No. 4 supermarket group, is being taken
over by U.S. private equity group Clayton, Dubilier & Rice,
while shares in No. 2 Sainsbury's have been buoyed by takeover
speculation. No. 3 Asda was purchased by the Issa brothers and
TDR Capital earlier this year.
PRIORITIES
Tesco forecast a full-year adjusted retail operating profit
of 2.5-2.6 6 billion pounds, having previously forecast a
similar outcome to 2019-20, when it made 2.3 billion pounds.
The company, with a 27% share of Britain's grocery market,
made an adjusted retail operating profit of 1.39 billion pounds
in the first half versus 1.19 billion a year earlier.
Group sales rose 3% to 27.3 billion pounds, while UK
like-for-like sales climbed 1.2%, having risen 0.5% in the first
quarter.
Recent industry data has shown Tesco outperforming its main
rivals.
Analysts say Tesco is also benefiting from a strategy to
match prices at German-owned discounter Aldi on around 650 lines
and the success of its 'Clubcard Prices' loyalty scheme.
The proportion of customers using Clubcard in large stores
has grown to 80% from 69% last year, with about seven million
shoppers now using the scheme through an app.
Despite inflationary pressures, Tesco said its customers saw
prices fall in the first half and they were still falling in the
second half.
Murphy also set out Tesco's strategic priorities going
forward - value, customer loyalty, convenience and using cost
savings to invest.
"Customers are faced with an increasing range of choice as
to where, when and how to shop and the competitive environment
has materially changed," he said.
"We believe that against this backdrop we can thrive."
($1 = 0.7351 pounds)
(Reporting by James Davey
Editing by Paul Sandle and Mark Potter)
