Shares in Tesco (LONG:TSCO) rose after the grocery giant increased the size of its share buyback and nudged its profit guidance higher. The announcement outweighed disappointing like-for-like sales for the second quarter of FY27.
Increased buyback and profit guidance
Tesco reported free cash flow of £1.57 billion for the six months to August, helped by a £250 million benefit from its payroll cycle. It also reduced net debt by 5% to just over £10 billion, taking its gearing down to two times EBITDA.
As a result, it announced an increase in its share buyback programme from £750 million to £950 million. At the same time it nudged up its operating profit guidance from between £3 billion and £3.3 billion to between £3.15 billion and £3.3 billion. The current consensus is for operating profit of £3.25 billion.
However, the group cautioned that while consumer confidence was resilient in H1, ongoing geopolitical tensions were creating uncertainty. CEO Ken Murphy said his focus remained on helping customers ‘get the best value’ from their weekly shop.
Slowing UK organic growth
During H1, Tesco reported group sales of £33.78 billion, up 2% on a headline basis but just 1% on an organic basis. UK sales, which make up roughly 75% of the group total, rose 1.5% over the half.
Given UK sales were up 1.8% on an organic basis in Q1, that suggests Q2 sales were up not much more than 1%. Meanwhile, Q2 organic sales growth in Ireland was better than Q1, and Booker sales declined at a slower rate, offsetting the UK slowdown.
The company confirmed its market share was lower than the previous year and lower than the start of 2026. Till roll data from Worldpanel UK shows Tesco’s market share at 27.8% in August against 28.4% last year and 28.7% in January.
Tesco Q1 and H1 sales (all figures in £m)
| Q1 FY27 | LFL Growth | H1 FY27 | LFL Growth | |
| UK | 12,600 | +1.8% | 25,182 | +1.5% |
| Ireland | 838 | +3.3% | 1,666 | +4.1% |
| Booker | 2,246 | -3.2% | 4,616 | -2.6% |
| Central Europe | 1,142 | +0.8% | 2,312 | +0.4% |
| Group | 16,826 | +1.0% | 33,776 | +1.0% |
Source: Company accounts
As we suspected, UK LFL sales growth was weaker in Q2 than Q1 reflecting the firm’s loss of market share. However, it managed to offset that with a better performance in Ireland and a less bad performance from the Booker wholesale business.
By buying back stock, the group can continue to generate double-digit EPS growth because there are fewer shares in issue. Increasing the buyback just keeps the plates spinning on the poles and keeps investors onside a while longer.
Similarly, raising the low end of its profit guidance range is good PR but the company has plenty of flexibility. Also, analysts were already forecasting profit toward the top end of the range so the raise was academic. What the firm needs to address is the fall in its market share, especially if Sainsburys (LON:SBRY) and Morrisons can agree on a deal.
According to press reports, the two retailers held talks at the end of 2025 but failed to agree on price. If they can resolve that issue, and the CMA doesn’t intervene, it would create a serious competitor with 24% market share.
