Tesco H1 preview: Where next for the Tesco share price?

When will Tesco release H1 earnings?

Tesco will release first half earnings on the morning of Wednesday October 5.

Tesco H1 earnings consensus

Analysts forecast Tesco will report a 5.2% rise in revenue to £31.98 billion in the first half. Adjusted retail operating profit – its headline measure – is expected to fall 6.5% to £1.23 billion. Adjusted pretax profit at the bottom-line is estimated to drop 11.9% to £1.00 billion.

Tesco H1 earnings preview

Tesco, the largest supermarket chain in the UK, is determined to keep prices low to maintain its sharpened focus on value as consumers struggle with the cost-of-living crisis, although this will weigh on margins. The result will be a rise in revenue and a drop in profits.

The intense focus on price is vital considering discounters Aldi and Lidl are the fastest-growing rivals, with the former recently becoming the fourth largest supermarket after overtaking Morrisons. Tesco believes it boasts its ‘strongest UK price position’ in six years, underpinned by its Aldi Price Match pledge and the revamped Tesco Clubcard that provides attractive discounts to the 20 million-plus households that take advantage.

‘Although difficult to separate from the significant impact of lapping last year’s lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment. Customers are facing unprecedented increases in the cost of living and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible,’ said CEO Ken Murphy after the supermarket chain released first quarter earnings back in June.

Like-for-like sales were up 2% in the first quarter and that looks set to have held largely steady in the second considering consensus numbers point toward 2.5% growth over the first half. The 5% revenue growth forecast in the first half will be driven by a 3.5% rise in the UK & ROI, where strong growth from wholesaler Booker and support from fuel sales are expected to counter softer demand for food and general merchandise. Tesco Bank is forecast to report a 12% jump in revenue.

Tesco is aiming to deliver an adjusted retail operating profit – its headline measure – of £2.4 billion to £2.6 billion over the full year and retail free cashflow of £1.4 billion to £1.8 billion. That would compare to the £2.83 billion in profit and £2.28 billion in cashflow delivered last year.

Analysts currently believe Tesco will deliver a profit closer to the bottom-end of that target range at £2.47 billion, according to consensus figures. Tesco has warned the outlook depends on how shopping habits shift in response to rampant inflation, its ability to deal with rising costs and the amount it must spend on keeping prices low.

That suggests there is some risk hanging over guidance given the uncertain economic landscape. Retail sales in food stores dropped 0.3% in August, marking the first monthly drop in over a year, and the latest figures show consumer confidence in Britain sank to its lowest level since records began in the 1970s in September as people brace for a recession.

Where next for the Tesco share price?

Tesco shares have plunged over 24% in the last six weeks and have rebounded since sinking to post-pandemic lows of last week of 199.9p, marking its lowest level since January 2019.

The stock swiftly rebounded from those lows after the RSI plunged deep into oversold territory. The indicator has remained in oversold territory for over a week since sinking below 219.3p, in-line with the level of support seen in early 2021, suggesting this is the first upside target for the stock. From here, it can target the 211.2p level of support seen throughout 2019 and 2020 and then 222.8p to recapture the level of support seen throughout the second quarter of 2021. A break above here could open the door to a potentially larger jump toward 229.4p.

The 17 brokers that cover Tesco believe the selloff in recent weeks has been overdone with an average target price of 288.45p, implying there is over 40% potential upside. However, this has been curtailed from almost 308p in the past month alone.

The near four-year low should hold as a floor, although any drop below here could see the stock drift to levels not seen since late 2018, toward 196.2p.

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