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Tesco and Debenhams to provide trading updates

Published 19/06/2016

On Thursday, Tesco is expected to report two consecutive quarters of UK sales growth
On Thursday, Tesco is expected to report two consecutive quarters of UK sales growth

Retail will dominate company reporting this week, with Tesco and Debenhams both providing trading updates ahead of the critical June 23 vote on Britain's EU membership.

Tesco is expected to report two consecutive quarters of UK sales growth for the first time in over five years on Thursday as the supermarket giant continues its turnaround.

City analysts forecast like-for-like sales in the first quarter of the year will rise 0.3% in the UK, and follows on from the 0.9% uptick in the previous period.

Bruno Monteyne of Bernstein also expects chief executive Dave Lewis to say the firm's recovery is "on track".

He said: "Tesco's execution over the last 18 months has been ahead of all expectations. The expected message is 'business as usual', the recovery is fully on track and they are retaining the margin guidance."

Over the past two weeks, Mr Lewis has continued his strategy of shedding non-core assets. Tesco has offloaded the Giraffe restaurant chain to Harry Ramsden owner Ranjit Boparan, and also sold its Turkish operations.

Most recently, it sold Dobbies Garden Centres for £217 million to investors led by Midlothian Capital Partners and Hattington Capital.

Tesco reports its results on the day of the EU referendum, and former Tesco boss Sir Terry Leahy has urged the British people to vote to Remain, warning that food prices would rise as a result of a Brexit.

He told the Press Association: "Food prices will go up if we vote for Brexit as the supply chain would be severely disrupted and we would be paying tariffs. Consumers are a big part of the recovery, and we should protect that recovery, not risk it."

In April, Tesco swung back into the black, notching up pre-tax profits of £162 million for the year and hailing "significant progress" following huge losses in 2015. But the supermarket warned its fightback amid a fierce price war could put profits under pressure.

The traditional big four supermarkets - Tesco, Asda, Sainsbury's and Morrisons - are engaged in a brutal price war that has eroded profit margins as German upstarts Aldi and Lidl continue to take market share. The launch of Amazon Fresh into the UK market is also expected to shake the sector up further.

Elsewhere, department store chain Debenhams looks set to reveal stagnant sales amid tough trading on the high street when it updates the market on Wednesday.

The retailer expects like-for-like sales to remain flat for the third quarter amid pressure from clothes price deflation and sliding footfall at shopping centres.

It comes after moves to overhaul its promotional strategy and cut down on special offers left sales struggling for direction in the third quarter of last year.

However, analyst James Collins, of Stifel, believes the group could even see sales fall as it takes a hit from the product "fire sales" at stricken retailer BHS.

"March and April were difficult for the clothing market and while the weather was more supportive in May, industry data suggest ongoing sales declines and significant deflation," he said.

"Footfall data also suggest weak shopping centre and high street trends."

He added: "Hence, against a relatively good third quarter last year, we expect Debenhams to report a group like-for-like decline of -1% to -2%."

The trading update will follow the announcement in May that Debenhams had appointed Amazon Fashion boss Sergio Bucher as its new chief executive.

Mr Bucher will join in October from Amazon, where he has acted as vice president of its fashion arm in Europe since 2013.

Current Debenhams chief executive Michael Sharp will step down on June 24 after nearly five years at the helm, although he will be available to help Mr Bucher with the handover if needed.

Mr Bucher will face the challenging task of bolstering Debenhams' performance amid a challenging climate for retailers.

High street stores are feeling the pinch as clothing prices continue to fall, while unseasonable weather has taken its toll on sales.

The latest inflation data from the Office for National Statistics showed clothing and footwear price tags eased back last month, down 0.2% between April and May.

Debenhams, which has 240 stores across 27 countries, posted a solid set of half-year results in April, with a 5.5% rise in group pre-tax profits to £93.8 million for the six months to February 27.

But group like-for-like sales growth slowed to 1.1% over that period, down from 1.9% over the Christmas season.

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