The week ahead: Tesco to report on Q3 trading

TESCO chief executive Philip Clarke will come under fire this week as third-quarter trading figures provide fresh ammunition for his critics.

Clarke is 18 months into a £1 billion transformation plan for Tesco’s UK stores, which are widely believed to have slumped back into declining sales in recent months. On average, analysts are predicting a 1.7 per cent drop during the 13 weeks to 23 November.

Some major shareholders are already questioning the leadership of Clarke and his finance director, Laurie McIlwee, who presided over disastrous first-half results.

Profits tumbled by almost a quarter after underlying sales declines in the UK and all nine of Tesco’s continuing overseas markets. In Europe, profits crashed by more than 70 per cent. Sir Richard Broadbent, chairman of the UK’s biggest grocer, has dismissed talk of management change. However, Wednesday’s third-quarter figures will do nothing to strengthen his hand.

Last week, both of Tesco’s corporate brokers – Barclays and Deutsche Bank – cut their full-year profit forecasts by 3 per cent, sounding alarm bells and sending Tesco shares more than 2.5 per cent lower in Tuesday’s trading

Deutsche Bank’s James Collins is predicting a 1.5 per cent decline in third-quarter UK sales, while James Anstead at Barclays forecasts a 1.8 per cent fall. Clive Black at Shore Capital estimates a decline of 1-2 per cent.

“It seems unlikely that Tesco’s third-quarter trading statement will be the turning point that the market is looking for,” Anstead added.

While overseas sales have in the past counter-balanced any weakness in the UK, Tesco’s home market still generates about 70 per cent of its profits. Revitalising those sales is therefore seen as crucial.

Industry data showed Tesco had the weakest growth among the UK’s “big four” grocers during October.

Like its major rivals, Tesco is being squeezed between upmarket retailers such as Waitrose and discounters Aldi and Lidl. The result, according to research by Kantar, was the loss of market share for all of the UK’s big four for the first time in more than a decade.

Clarke will likely highlight the current weakness of the UK grocery market, with families spending cautiously as inflation continues to outpace wage growth.

This has had a particularly acute impact on Tesco, which sells a relatively high proportion of non-food goods, which customers have cut back on the most.

The company has been stepping up its money-off vouchers in recent weeks to boost trade, and has joined its rivals in extensive TV advertising campaigns in the run-up to Christmas.

Black at Shore Capital said this could eat into profit margins. He added: “We are not so sure about such a strategy.”

Source : Kristy Dorsey - The Scotsman
www.scotsman.com/business/retail/tesco-boss-faces-flak-over-trading-figures-1-3215283