The British grocer grew first-half sales 2% and adjusted operating profit 6.5%. Earnings per share rose 12.2%, and the stock gained more than 3% in early London trading.
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Tesco did not promise investors a higher ceiling on Thursday. It narrowed the range from below and handed more cash back.
For the 26 weeks to , Tesco reported sales, excluding VAT and fuel, of £33.78 billion, up 2.0%. Adjusted operating profit rose 6.5% to £1.78 billion. Adjusted diluted earnings per share rose 12.2% to 17.3 pence, and pretax profit rose 11.5%. The interim dividend is 5.05 pence.
The guidance
The company now expects full-year adjusted operating profit of £3.15 billion to £3.30 billion. The previous range was £3.0 billion to £3.3 billion. The top is unchanged and the bottom is £150 million higher, lifting the midpoint by £75 million to about £3.23 billion.
Raising the floor while holding the top signals greater confidence that profit will not disappoint, without a claim that it will grow faster than planned.
The buyback
Tesco increased its planned share repurchase to £950 million from £750 million, an increase of about 27%. It expects capital spending of about £1.7 billion. Net debt was £10.04 billion.
Profit and per-share growth
Earnings per share rose nearly twice as fast as operating profit, 12.2% against 6.5%. A shrinking share count from buybacks is one likely contributor to that gap, and the larger repurchase program would widen it further if profit growth holds.
The stock
Tesco shares rose about 3.4% to 492.15 pence early Thursday in London, on a morning when the FTSE 100 was lower.
Steady Growth and the Limits of Guidance
One reading is that Tesco is compounding steadily: 2% sales growth turns into 6.5% profit growth and 12% earnings-per-share growth through cost control and capital returns, and the raised floor makes the full-year number more secure.
Another reading is that the upside is limited. The top of the profit range did not move, sales growth is slow, and a larger share of per-share growth comes from buybacks rather than from the business itself.
The second half
Christmas trading will decide where in the £3.15 billion to £3.30 billion range the year lands. The pace of the larger buyback, and any change in the top of the range at its next trading update, will show whether management sees room above its current forecast.