Tesco half-year results preview: strength and caution as competition intensifies
The UK's largest supermarket enters its interim results with solid Q1 momentum but faces margin pressure from competition and cost inflation in challenging market conditions.
Mixed signals heading into interim results
As Tesco prepares for its interim results, out at 7am on the 2nd of October, the company appears to be entering the period with a mix of strength and caution.
Year-to-date the Tesco share price has risen by 16% but over the past five years it gained 100% on an annualized return and by 212% on a total return basis, i.e. by re-investing dividends.
Tesco performance chart
Tesco financial expectations
Tesco is expected to see slightly lower revenue and net income:
- Revenue: £34.67 billion, slightly lower than the £35.18 billion in the same period a year ago
- Net income: £975 million, down around 10% compared to a year ago
- Earnings per share (EPS): 14 pence, similar to the same period last year
In its first quarter (Q1) of 2025/26, Tesco delivered solid like-for-like sales growth in its major markets, with its UK & rate of return (ROI) business showing strong performance across both food and non-food categories.
Central Europe also contributed positively to the overall performance, demonstrating the benefits of Tesco's diversified geographic and format portfolio during challenging market conditions.
UK market share has edged higher, underscoring Tesco's capacity to hold ground - and even make gains - in what remains an intensely competitive grocery sector.
The retailer's value proposition, bolstered by pricing investments and improvements in product and quality perception, has been central to maintaining customer loyalty even as inflation and input costs affect margins.
Competitive intensity weighs on profit outlook
That said, investors will be scrutinising earnings for signs that Tesco can sustain its momentum in the face of rising competition, cost headwinds, and uncertain consumer behaviour.
Profit guidance issued earlier in the year projected a dip in adjusted operating profit for 2025/26 compared to 2024/25, reflecting Tesco's acknowledgement of growing competitive intensity and cost pressures.
Cost inflation driven by labour, packaging, and regulatory burdens continues to weigh on operations, and margins may be squeezed, particularly if Tesco feels pressure to match rivals on pricing.
The grocery sector's price war dynamics create challenges for all operators, as market share gains often come at the expense of profitability in the near term.
Key performance areas under investor focus
Also of interest will be how Tesco's non-UK divisions perform, how discounting and promotions are managed, and how online and convenience channels fare amid changing shopping patterns.
Whether there are any updates to its outlook for free cash flow, capital expenditure or shareholder returns will be important for investors assessing the company's capital allocation priorities.
The market will likely reward any signs of stabilisation or small improvements in margin performance, while weak revenue or pessimistic guidance could lead to renewed investor concern.
Margin pressure remains central concern
The grocery sector continues to face margin pressure from multiple sources, including aggressive competition from discount retailers and the need to invest in price competitiveness to maintain market share.
Tesco's ability to balance pricing investments with operational efficiency improvements will be crucial for maintaining profitability while defending and growing market position.
Supply chain efficiency and procurement advantages from Tesco's scale provide some protection against cost inflation, though these benefits may be offset by competitive pricing requirements.
The company's focus on operational excellence and cost discipline will be tested as external pressures continue to challenge traditional grocery retail margins.
Strategic priorities and market positioning
Tesco's strategic focus on customer value, convenience, and operational efficiency continues to underpin its market leadership position, though execution remains challenging in the current environment.
The integration of digital and physical operations provides competitive advantages, as customers increasingly expect seamless omnichannel experiences from major retailers.
Investment in technology, supply chain capabilities, and store network optimisation supports long-term competitiveness while creating near-term cost pressures that affect reported profitability.
Customer loyalty programmes and data-driven personalisation have become increasingly important tools for maintaining competitive differentiation in the commoditised grocery market.
Tesco analyst ratings and technical analysis
According to LSEG Data & Analytics, analysts rate Tesco as a ‘buy’ with a mean long-term share price target at 446 pence, around 3% above the current share price (as of 25 September 2025).
Tesco LSEG Data & Analytics chart
TipRanks has a Smart Score of ‘8 Outperform’ with a ‘strong buy’ rating for Tesco.
Tesco TipRanks Smart Score chart
The Tesco share price has risen by around 40% from its April 310.3p trough and remains on track to reach its 2010 peak at 454.9p. This should remain the case while the August low at 406.9p holds on a weekly chart closing basis.
Tesco monthly candlestick chart
In the short-term further sideways consolidation below Tesco’s 445.0p September multi-year high may ensue since negative divergence may be spotted on the daily Relative Strength Index (RSI).
A fall through the 55-day simple moving average (SMA) at 426.8p may re-engage the late August-to-early September lows at 420.10p-to-417.0p. While the next lower early August low holds, the medium-term uptrend is deemed to remain intact.
Tesco daily candlestick chart
Investment implications for UK grocery leader
For investors considering Tesco ahead of the half-year results, the company represents the challenges and opportunities facing UK grocery retail during a period of intense competition.
- Research Tesco's competitive positioning, strategic initiatives, and market dynamics in UK grocery retail to understand the investment opportunity.
- Consider how consumer spending patterns, competitive pressures, and cost inflation might affect the company's performance trajectory.
- Open an account with IG by visiting our website and completing the application process.
- Search for 'Tesco' or its ticker 'TSCO' on our trading platform or app.
- Consider appropriate position sizing given the defensive characteristics but competitive challenges facing grocery retail.
Share dealing provides direct exposure to Tesco's market leadership and dividend yield for long-term investors who believe in the company's strategic positioning.
Spread betting and CFD trading offer flexible approaches for trading around earnings announcements and sector developments.
The upcoming half-year results will provide crucial insights into whether Tesco can maintain its market leadership while managing the margin pressures and competitive challenges that define the current UK grocery retail environment.
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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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