Tesco plc (TSCO) enters 2025 in stronger shape than it has been in years. After navigating the post-pandemic inflation surge and reshaping its pricing strategy, the UK’s largest supermarket group is back to generating consistent growth, expanding margins, and delivering dependable free cash flow. Shares have remained relatively stable through the year, reflecting both market confidence in its execution and recognition that the easy gains from recovery are now behind it.
The company’s recent half-year results underscored that theme of steady, disciplined progress. Group sales climbed 4.6% to £34.1 billion, while retail operating profit rose 10.4% to £1.54 billion, a testament to tight cost control and efficient execution rather than aggressive expansion. With private-label sales rising and energy costs easing, Tesco has widened margins while maintaining value perception in an intensely competitive market.
| Metric | Period | Value | YoY Change | Commentary |
|---|---|---|---|---|
| Group Sales (ex. VAT) | H1 2024/25 | £34.1 bn | +4.6% | Growth across all markets; UK & ROI up 6% |
| Retail Operating Profit | H1 2024/25 | £1.54 bn | +10.4% | Margin expansion from cost control and mix |
| Statutory Profit Before Tax | H1 2024/25 | £1.33 bn | +6.4% | Supported by lower finance costs |
| Retail Free Cash Flow | H1 2024/25 | £1.3 bn | +2% | Funded £500 m buybacks and interim dividend |
| Retail Operating Margin | H1 2024/25 | 4.5% | +0.2 pp | Continued improvement on efficiency gains |
| Net Debt | 31 Aug 2024 | £9.8 bn | –£0.4 bn | Deleveraging through strong cash generation |
| Booker Sales | H1 2024/25 | £4.9 bn | +7.5% | Driven by catering and retail channels |
| Online Sales | H1 2024/25 | £3.0 bn | +3.2% | Improved fulfillment margins and order mix |
| Dividend per Share (interim) | FY 2024/25 | 4.7 p | +11% | Continued progressive policy |
| CapEx | FY 2024/25 (est.) | £1.2 bn | Flat | Focus on digital, supply-chain, and renewables |
Yet, despite the operational strength, investors remain split on what comes next. The shares trade at a modest multiple, suggesting limited expectations for breakout growth but continued faith in Tesco’s cash generation and dividends. As inflation normalizes and wage growth stabilizes, 2025 may prove to be a test of endurance for the company to see whether it can sustain its hard-won profitability in a more balanced consumer landscape.
Company Snapshot
Founded in 1919 and headquartered in Welwyn Garden City, Tesco plc operates more than 3,700 stores across the UK and Ireland, with additional wholesale and franchise operations in Central Europe. It employs roughly 330,000 colleagues and serves over 20 million customers weekly through its stores and online channels. Tesco’s retail business is complemented by Booker, the UK’s leading food wholesaler, and Tesco Bank, which provides consumer finance and insurance products.
The company’s strategy revolves around three pillars: value, convenience, and loyalty. The Clubcard ecosystem now drives over 80% of UK sales, helping Tesco deepen engagement and tailor pricing. Its digital and supply-chain investments are aimed at reinforcing its market-leading position while supporting long-term free cash flow growth and sustainable shareholder returns.
Financial Story: A Reset year, Not a Lost One
Fiscal 2024/25 marked a year of quiet execution for Tesco rather than dramatic expansion. Group sales rose 4.6% at constant rates to £34.1 billion, with operating profit increasing 10.4% to £1.54 billion. The retailer benefited from lower supply-chain costs, resilient food volumes, and improved own-brand performance. Statutory profit before tax came in at £1.33 billion, up from £1.25 billion a year earlier, reflecting disciplined cost control and steady footfall growth across both the UK and the Republic of Ireland.
Investors, however, remain cautious. After last year’s strong rebound, Tesco’s share price has traded sideways as the market digests tighter consumer spending and normalizing inflation. Free cash flow totaled £1.3 billion in the first half, up slightly year-on-year, supporting another £500 million in share buybacks. Management has continued to emphasize cash returns over aggressive expansion, signaling confidence, but also realism, about a slower-growth environment.
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Even so, Tesco’s fundamentals look more resilient than they have in years. Its online operations are profitable, Booker wholesale continues to outperform expectations, and operating margin has crept up to 4.5% from 4.3%. CEO Ken Murphy called it “a strong first half, with further confidence in the full-year outlook,” noting that consistent cost discipline and value-led pricing are helping retain shoppers even as real wages stabilize.
1. Strength Through Scale and Simplicity
Tesco’s core advantage remains its size and operating efficiency. With market share climbing above 27%, the highest in five years, the company continues to leverage its distribution network and data-driven pricing model to maintain customer loyalty. The “Save to Invest” program delivered over £500 million in cost efficiencies during the half, offsetting higher wages and energy expenses. This operating leverage helped push margins higher even as consumer sentiment remained subdued.
Equally important, Tesco’s private-label innovation is driving both value perception and profitability. Own-brand penetration reached record levels across fresh food and household categories, enabling better shelf control and supplier negotiation. The result: consistent mid-single-digit growth without sacrificing price competitiveness, a balance that few UK retailers have achieved in the post-pandemic inflation reset.
2. Digital Profitability Arrives
After years of heavy investment, Tesco’s digital and online channels are finally paying off. Online grocery sales rose 3.2% year-on-year, supported by improved delivery density, streamlined fulfillment, and lower last-mile costs. The company’s Tesco App, which integrates loyalty, payment, and order tracking, continues to deepen engagement, while dunnhumby, its analytics subsidiary, expanded operating profit by double digits.
Meanwhile, Tesco Bank returned to growth, benefiting from improved net interest margins and stable credit quality. Combined, these non-store businesses are now meaningful contributors to group profitability, helping Tesco diversify its earnings base beyond traditional retail. Digital channels accounted for roughly 13% of total sales, small but growing, with management projecting steady expansion over the next two years.
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3. Conservative Outlook with Confident Execution
Looking ahead, Tesco expects modest but steady performance. Management reaffirmed full-year guidance for mid-single-digit retail operating profit growth and free cash flow of at least £1.8 billion, supported by a balanced mix of volume recovery and price stability. The company is also continuing its capital return program, with another £1 billion planned for FY 2025/26 through buybacks and dividends.
CEO Ken Murphy emphasized that Tesco’s competitive strengths, scale, efficiency, and brand trust make it well-positioned to weather softer consumer cycles. Analysts largely agree: Jefferies forecasts FY 2026 earnings per share of roughly 30p, implying a forward P/E near 12×, undemanding for a company with stable 7–8% ROIC and a 4% dividend yield. Still, the main challenge lies in reigniting top-line momentum without eroding its margin discipline.
The TIKR Takeaway
Tesco’s half-year numbers reinforce the story of a mature retailer evolving rather than transforming. The company is executing well, balancing growth with returns, and maintaining enviable consistency in a choppy retail market. Its free cash flow engine is robust, its leverage profile continues to improve, and its shareholder returns remain compelling for a defensive name.
Yet, while Tesco’s operational turnaround is undeniable, the stock may already reflect much of the good news. With earnings stable but not accelerating, and competition from Aldi and Lidl as fierce as ever, investors should expect steady compounding rather than explosive upside. Still, in a market where predictability is scarce, Tesco’s brand, data advantage, and disciplined execution make it one of the UK’s most dependable consumer plays heading into 2026.
Should You Buy, Sell, or Hold Tesco?
Tesco offers investors a mix of stability and modest upside. With the UK consumer environment gradually improving, the group is well positioned to sustain earnings growth and capital returns, though valuation is already reflecting much of that optimism.
For value-oriented investors, Tesco remains a core defensive play within European retail, one with solid execution, a trusted brand, and a proven cost-discipline framework. But absent a major catalyst, upside may be incremental rather than explosive.
Tesco’s reliability and yield justify a place in diversified portfolios, but major re-rating potential likely depends on macro tailwinds.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!