BNPP Exane view:
Tesco''s 1H26 EBIT of GBP 1.674bn was well ahead of consensus of 1.59bn and the buyside bar we believe was between us and cons (c.GBP 1.625bn), albeit helped by financial services, c40mn above our forecast. FY26 EBIT guidance was raised to GBP 2.9 to 3.1bn, also ahead of our, and we believe, market expectations. Though the midpoint GBP 3.0 (from GBP 2.85bn) implies 2H profits -10% after +1.5% in 1H, this is consistent with Tesco''s guidance in previous years and we believe well anticipated by the market. The language of the guidance remains unambiguous about Tesco''s focus on retaining its competitiveness. We see consensus rising above the midpoint of guidance (EPS +LSD%) and see the stock outperforming LSD% today.
What happened?
Tesco released 1H26 results. 1H26 sales +3.6% to GBP 36.1bn bn (vs company compiled cons. GBP 35.9bn, BNPP GBP 36.3bn). 2Q26 UK Grocery LfL of +4.6% was below cons +5.1% (BNPP +6.0%). Retail EBIT was GBP 1,674mn, +1.5% YoY (vs cons GBP 1,590 mn, BNPP GBP 1,651mn). Underlying EPS of 15.43p, +6.8% YoY (vs cons. 14.4p, BNPP 14.9p).
Retail FCF was GBP GBP 1,298mn vs 1,261mn in 1H25. Below the line cash exceptionals were GBP mn vs GBP in 1H25. Net debt was GBP 9.9bn (from 9.5bn in FY25).
Guidance: Guidance was updated, with operating profit now guided to GBP 2.9bn - 3.1bn (vs previously GBP 2.7bn - 3.0bn and vs cons GBP 3.0bn and BNPP GBP 3.1bn) and retail FCF in the medium-term between GBP 1.4bn - 1.8bn (vs BNPP GBP 1.7bn in FY27) reiterated. At FY25 Tesco referenced that they had seen an increase in the competitive intensity of the market and their guidance gave them the flexibility and firepower to respond to market conditions. This time they say.
Conference call: Tesco will host a conference call at 9am UK time.
Likely direction of consensus: given the upgrade to guidance, we would expect LSD% increase to consensus EPS FY26 expectations.
Performance YTD: Tesco stock is +17% YTD vs SXXP +11% and our coverage...
