Tesco explores sale of central European business to sharpen UK focus

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Tesco explores sale of central European business

Highlights

Tesco's central European operations delivered £4.5bn revenue but only £115mn of group’s £3.2bn adjusted operating profit in 2023.
Profit in Tesco's eastern European segment declined amid intense competition and regulatory pressure, with a £75mn store value write-down reported.
Potential sale proceeds could boost Tesco's UK investments as discounters like Aldi and Lidl now hold nearly 20 percent of the UK grocery market.

UK competition and returns shape rationale

According to Financial Times, Tesco's remaining European operations generated £4.5bn in revenue last year but contributed only £115mn of the group's £3.2bn in adjusted operating profit. Group revenue was £66.6bn, underlining how limited the region's earnings contribution is relative to the wider business.

The retailer has restructured parts of the business in the region as discounters such as Aldi and Lidl increase pressure and shopping habits shift away from large out-of-town stores. In its recent annual report, Tesco said profit in its eastern operations fell because of stronger competition in Slovakia and rising regulatory pressure, while it wrote down store values by £75mn.

Any sale proceeds could strengthen Tesco's position in its home market, where it is investing in new stores and defending share against rivals. Asda and Morrisons are still trying to recover market share, while Aldi and Lidl control close to 20 per cent of the UK grocery market.

Chief executive Ken Murphy said in 2023 that the European business was an integral and successful part of the group, making a sale a strategic reversal if it proceeds. Since taking over in 2020, Murphy has overseen a doubling in Tesco's share price, while the company has also expanded Clubcard-led loyalty efforts, increased technology investment plans and returned capital to shareholders, including £700mn after selling its banking operations to Barclays in 2024.

In our earlier TSCO price analysis, we noted that Tesco shares were holding above key moving averages, with several indicators pointing to bullish momentum despite subdued day-to-day moves. The piece also highlighted near-term catalysts and risks, including new in-store shopping rules aimed at managing peak summer demand and the company’s migration away from VMware, which has surfaced some backup-system compatibility issues. Overall, it framed TSCO as range-bound in the short term while remaining supported by positive underlying trend signals.

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