Supermarket giant Tesco has beaten profit expectations as it continues to speed ahead in the competitive UK grocery market, but it warned that high competition will affect profit next year.

Tesco shares slumped more than seven per cent in early deals.

The UK’s biggest supermarket told markets this morning that group adjusted operating profit rose 10.9 per cent at constant rates, to £3.13bn.

Analysts had expected group adjusted operating profit of £3.07bn for the year to February.

Life-for-like sales rose 3.1 per cent, with sales in the UK up four per cent year on year.

Tesco has seen strong growth under current boss Ken Murphy, particularly through its Clubcard loyalty programme and Aldi price match scheme.

Industry experts also predicted revenue of around £70bn for the year, citing stronger sales volumes from shoppers.

Tesco just missed this target, reporting £69.9bn in revenue, up 2.5 per cent on the year before. Post-tax profit rose to £1.6bn, up 36.7 per cent year on year.

“We have invested in bringing great prices to our customers throughout the year. Our continued focus on value and quality, coupled with market-leading availability, has contributed to another year of increased customer satisfaction and our highest market share for nearly a decade,” CEO Ken Murphy said.

Tesco’s market share rose by 0.67 per cent to 28.3 per cent, reaching its highest level since 2016.

Tesco expects lower profit next year amid ‘trolley wars’

The supermarket expects group adjusted operating profit of between £2.7bn and £3bn next year, a drop on this year’s profit.

“In the last few months, we have seen a further increase in the competitive intensity of the UK market. 

“We are committed to ensuring that customers get the best value in the market by shopping at Tesco and we see further opportunities to protect and strengthen our competitiveness,” the company said.