Tesco poised to deliver results
Published 01/10/2013 | 14:51
Tesco's recovery plans will come under more scrutiny tomorrow when it delivers half year results amid mounting pressure on its market share.
The UK's biggest grocery chain will reveal how sales fared in the heatwave, which was followed by a less impressive August for the retail sector.
Chief executive Philip Clarke has been leading a £1 billion overhaul at the group, having reported its first annual profits fall in nearly 20 years.
But questions are being raised over the turnaround plans as Tesco battles to stem a continuing decline in its market share.
Latest industry data from Kantar Worldpanel showed its slice of the UK's grocery spending was down from 30.9% to 30.2% compared to last year.
Tesco and the other big supermarkets - Asda, Sainsbury's and Morrisons - are scrapping over a dwindling portion of the pie as some consumers drift upmarket towards Waitrose while others increasingly favour discounters Aldi and Lidl.
Of the four, only Sainsbury's - which also reports its second quarter figures tomorrow - has been able to hold on to and grow its share.
Tesco has mounted a push for the higher spenders, including through a Downton Abbey promotion sponsored by its premium Finest range.
It has been retrenching from its more difficult overseas markets, recently securing the sale of its loss-making US arm Fresh & Easy to put efforts instead into turning around its UK business.
It is also scrapping more than 100 major UK store developments and focusing growth on convenience stores and its online offering, while looking to transform stores into family-friendly retail destinations, snapping up the Giraffe child-friendly restaurant chain to open the eateries alongside larger stores.
The deal follows recent similar investments in the Harris + Hoole coffee shop chain and Euphorium Bakery.
So far sales have been slow to respond, dipping 1% on a like-for-like basis in the first quarter to the end of May amid fall-out from the horsemeat scandal and analysts expect second quarter sales to be flat at best.
Supermarkets have endured a topsy-turvy summer with a barbecue sales boost during the July heatwave followed by a dip as consumers tightened their belts.
Official figures showed food sales rose 2.7% and fell by the same figure in August.
Analysts at Cantor Fitzgerald believe Mr Clarke has more work to do to convince investors that his strategy to 'Build a Better Tesco' is working.
In particular, the focus will be on Tesco's UK trading margin given that costs are rising and sales volumes have been negative.
Cantor's food retail analyst Mike Dennis said: ''The profit outlook for the second half could very much depend on a positive UK sales performance, higher gross margin and a credible explanation of how the multitude of investments in UK stores will improve the brands overall performance.''
The broker believes underlying profits for the half-year will be down 6% to £ 1.36 billion, although most retail experts believe UK trading profits will rise 0.9% to £1.1 billion.
Sainsbury's is on course to gain more ground on its struggling rival by delivering its 35th consecutive quarter of sales growth.
Kantar figures recently showed its market share increased to 16.6% during the 12 weeks to mid-September from 16.4% a year earlier.
Analysts on average expect Sainsbury's to grow like-for-like sales by 1.8% during the 16 weeks to the end of September, ahead of the 0.8% growth seen in the previous three months.
Sainsbury's has prospered with its ''Live Well for Less'' offer to hard-pressed households squeezed by falling real wages, while the brand has also been given a fillip from its sponsorship of last year's Paralympic Games and British athletics earlier this summer.