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Tesco Plc lifted its profit forecast as it attracted shoppers by keeping a tight lid on food prices and its own costs.
Britain’s biggest grocer now expects to deliver as much as £2.7 billion ($3.3 billion) in adjusted operating profit this year from its retail business, compared with previous guidance of flat profit. The stock rose 3.2% on Wednesday.
Tesco’s prices have never been closer to those of discounters, according to Chief Executive Officer Ken Murphy. Supermarkets have been trying to rein in prices during a historic inflationary surge in Britain which has lasted longer than expected.
As the largest operator in one of the world’s most competitive grocery markets, Tesco has kept a sharp eye on affordability by expanding a program to match prices with discount rival Aldi. It has also increased promotions offered through its Clubcard loyalty program.
The profit guidance should reassure investors given that management is usually conservative, wrote James Grzinic, an analyst at Jefferies.
“We’ve seen inflation come down progressively over the last six months, which gives you a clear indication our suppliers are working closely with us to try and drive down costs,” Murphy said on a call.
Dairy and pasta prices are falling the most, while inflation is still pushing up the cost of chicken, meat and potatoes.