Britain's largest retailer Tesco on Thursday raised its 2025/2026 profit guidance as the supermarket chain won customers with competitive prices.
Group adjusted operating profit is now expected to reach between £2.9 billion and £3.1 billion, up from a previous forecast of £2.7 billion to £3 billion, Tesco said in a statement.
Increased competition in the UK market had led Tesco in April to lower its profit guidance.
"Competitive intensity remains elevated," the company said.
However, it added "a better-than-expected customer response to our actions and the benefit of an extended period of good weather have helped offset the cost of our investments."
Tesco uses lower price offers to attract customers in the face of competition, such as matching prices of German-owned discounter Aldi.
"The steps we have taken to keep prices down for customers have improved our price position relative to the market," said chief executive Ken Murphy.
Net profit fell more than nine percent in its first half to £950 million from the same period a year earlier, while revenue grew 3.6 per cent to around £36 billion.
It saw double-digit growth in sales of its premium 'Finest' range of products.
"Tesco's broad offer to customers at all price-points is helping it to drive sustained market share gains," said Derren Nathan, head of equity research at Hargreaves Lansdown.
"Competition remains fierce and household budgets are under pressure, but Tesco is well placed to continue investing in value and quality," he added.
The company is on track to deliver £500 million of savings for its 2025/2026 financial year to help offset costs of increased higher businesses taxes and a higher minimum wage, brought in this year by the UK's Labour government.
Business have warned that these increases will raise the costs of employing people.
Murphy said that while UK household budgets remained under pressure and consumers were worried about the prospect of tax rises in the upcoming government budget, he expected robust Christmas trading.
"We are actually betting on a good Christmas, we have a lot of confidence in the strength of our offer," he told reporters after the group reported a 4.9 per cent rise in UK like-for-like sales over its first half to August 23.
He called on chancellor Rachel Reeves to deliver a "pro-growth and pro-jobs" budget on November 26.
'Continuing to win with customers'
"We're continuing to win with customers and that has driven our strong performance," said Murphy.
Tesco had said in April it expected profit to fall in its 2025/26 year as it set aside cash to deal with a step-up in the "competitive intensity" of the British grocery market - a reference to a pledge of sustained price cuts from Asda, the number three player, which has been losing market share.
Tesco said on Thursday that competitive intensity remained elevated.
"However, in the first half, a better-than-expected customer response to our actions and the benefit of an extended period of good weather have helped offset the cost of our investments."
Industry data published last month showed Tesco winning more market share than any other UK grocer.
Murphy said those gains "reflect the decisive action we took at the start of the year to further invest in value, quality and service".
Analysts say Tesco's strategy of matching the prices of Aldi on over 600 items, together with heavy promotion of its Clubcard loyalty scheme, which provides lower prices for members, is driving growth.
Tesco is also becoming increasingly digital, stepping up personalised engagement with customers and developing growth avenues such as its online Marketplace platform and retail media.
"We still think that the H2 profit guidance is conservative, implying more margin pressure in H2 year-on-year than in H1," analysts at Bernstein said in a note.