Tesco brushed off mounting concerns over supply chain issues and inflation to prove the benefits of scale as its first-half results eclipsed City expectations.

The supermarket leader hiked its full-year profits expectations, after strong UK sales and the sharp recovery of Booker saw first-half revenues increase by 6.3% at constant rates to £30.4bn.

In the UK, sales grew ahead of Tesco’s own expectations, with two-year like-for-like sales up by 8.9% (and one-year sales up 1.2%) as it continues to benefit from customers eating more meals at home than prior to the pandemic. Total like-for-like retail sales were up 2.3% on a one-year basis and 8.4% on a two-year basis, while online two-year like-for-like sales were up 74.1% with over 700,000 more customers using its services.

Wholesale arm Booker also recovered strongly during the period, with one-year like-for-like sales up 11%, driven by a sharp recovery in demand from catering customers.

The overall strong sales performance meant group adjusted operating profit grew by 41% at constant rates to £1.46bn, helped by a reduction in Covid-related costs and a return to profitability in Tesco Bank.

Covid costs totalled £122m in the first half, related to absence, in-store safety measures and additional costs around fulfilling online sales, and were significantly less than the £533m costs incurred in the first half of last year.

As a result of this stronger-than-expected first-half performance, Tesco has increased its adjusted retail operating profit expectations for this financial year to between £2.5bn and £2.6bn.

City sentiment was further boosted by Tesco announcing a £500m shareholder buyback scheme to take advantage of its suppressed share price since the Covid crash, while committing to paying a “progressive dividend” to shareholders, aiming to grow the dividend per share each year.

HSBC said the results “tick pretty much every box”, adding: “Tesco now has an appropriate strategy to unlock value for shareholders by delivering for other stakeholders too.” Bernstein said the results show a business “firing on all cylinders”, though warned: “The tone is still cautious and considered [and] the size and timing of the buyback may mute excitement.”

Barclays added: “The bigger picture is that this set of results should help frame the Tesco investment case much more clearly. Tesco believes it can hold market share, cut costs materially (£1bn over three years), grow absolute profits, deliver strong FCF and return much of it to shareholders.”

Tesco shares soared 5.9% to 267.9p on Wednesday to close at their highest level since its £5bn special dividend payout in February 2021, though they remain around 16% down since the market’s Covid falls in February 2020.

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