Tesco under pressure to deliver good sales report
Apr 14 2008 by Peter McCusker, The Journal
A CLEARER picture on the impact of the credit squeeze on consumer spending will emerge this week when a number of retailers present trading figures.
Impressive sales figures from Tesco’s three main competitors have increased the pressure on the supermarket chain ahead of full-year results tomorrow.
Sainsbury’s, Morrisons and Asda’s US parent Wal-Mart have all put in City-pleasing performances of late.
With a share of around 30% of the UK grocery market, Tesco is not expected to be immune from the belt tightening seen among consumers.
Analysts at Shore Capital are expecting Tesco to post full-year comparative sales including petrol of around 4%, with the market forecasting like-for-like sales excluding petrol at around 3% to 3.5%. Underlying pre-tax profits of around £2.78bn are pencilled in for the year, up from £2.46bn, according to Shore Capital.
Given recent speculation surrounding its fledgling US venture, Fresh & Easy, attention will be paid to the chain and its initial trading performance.
Rumours have been flying that the launch has not gone as smoothly as Tesco hoped, with much being read into news last month that the group had halted the expansion of its US chain for three months after opening 60 stores since last autumn.
Tesco chief executive Terry Leahy insisted the move had always been planned, but it raised questions over Fresh & Easy’s trading success so far.
An analyst at Piper Jaffray in America is also said to have claimed earlier this month that first half sales at Fresh & Easy could be less than a third of the US$100m expected by the broker. There are suspicions that Tesco may not provide much clearer figures for the US arm with the final results, potentially refusing to break it out from the rest of the international business.
America aside, the market will also be keen to hear Tesco’s views on prospects for the British consumer over the next year or so. Shore Capital analysts said that “there is no doubt that compared to a couple of years ago, Tesco management faces greater challenges”.
But they added that if the food and drink sector is able to continue weathering the trading storm, Tesco stands to benefit, even if it does have to work harder to gain custom.
Retailers JJB Sports and John David Group, the owner of JD Sports, should present contrasting pictures in full-year results next week.
JD Sports is much less reliant on replica football kit sales and is set to outshine its rival in results tomorrow.
JJB however will have less palatable news for investors on Wednesday, with consensus forecasts putting underlying profits more than 25% below the previous year at £33.8m. Falling shirt sales have hit home, with margins suffering from aggressive stock clearances.
Retail chain WH Smith will be the latest high street player to give an update on trading conditions when it releases interim results on Thursday.
The market is forecasting little change in the trading outlook at the half-year stage, but will be keenly watching for news on key focus areas for the firm – margins and cost.
Debenhams did improve market share for its clothing ranges during the first half.
But shares in the group have slumped to less than a third of the level at which it was returned to the stock market in 2006 – when the private equity consortium which took the group private in December 2003 netted big profits.
Merrill Lynch, the investment bank which handled the float, sold its entire 6% stake last month for just 60p, also hitting the stock price.
