Tesco Reports Mixed Earnings Ahead of Share Buyback

Tesco's fiscal year 2025 results show a decrease in pre-tax profit, yet net profit increased alongside revenue growth. A significant share buyback and dividend boost were announced despite expectations of lower adjusted operating profits for fiscal 2026.

Date: 10-04-2025

AI Rating: 6

Mixed Earnings Insights
Tesco's recent report indicates a decrease in pre-tax profit by 3.2%, totaling £2.22 billion, despite a notable increase in net income of 36.7%, reaching £1.63 billion. This signals potential concerns for investors about the company's revenue generation capability. However, earnings per share have risen sharply by 42%, boosting investor confidence to some extent.

Adjusted earnings per share from continuing operations offer insights into operational performance, reflecting a solid increase to 27.38 pence from 23.41 pence previously. This growth in adjusted EPS highlights Tesco's capability to drive profitability even amid challenges. The reported revenue growth of 2.5% to £69.92 billion is also commendable, underpinning strong consumer demand.

However, looking forward, Tesco anticipates a decline in Group adjusted operating profit for fiscal 2026, predicting a range of £2.7 billion to £3.0 billion, compared to £3.13 billion last year. This outlook presents a cautious view, suggesting that investors should remain vigilant regarding market conditions impacting operational efficiency.

Additionally, Tesco's announcement of a £1.45 billion share buyback program, alongside a proposed increase in dividend payout by 13.2%, signals management's commitment to returning value to shareholders. However, the reliance on free cash flow and disposal of Banking operations reflects a strategic pivot that may raise concerns about future liquidity and operational focus.

Overall, while there are positive aspects, particularly in EPS growth and shareholder returns through dividends and buybacks, the outlook for operating profit presents challenges that could affect stock prices moving forward.

Stocks: TSCO.L