The Week Ahead: Updates due from Tesco and Debenhams

Tesco chief executive Dave Lewis talking to store staff.

Tesco chief executive Dave Lewis talking to store staff. - Credit: Archant

The retail sector will dominate company reporting this week, with Tesco and Debenhams both providing trading updates ahead of Thursday’s vote on Britain’s membership of the European Union.

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

City analysts forecast that like-for-like sales for the first quarter of this year will rise 0.3% in the UK, following on from the 0.9% increase in the finalst three months of 2015.

Bruno Monteyne of Bernstein also expects Tesco chief executive Dave Lewis to say that 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, last Friday, it announced the sale of Dobbies Garden Centres for £217m to investors led by Midlothian Capital Partners and Hattington Capital.

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In April, Tesco swung back into the black, notching up pre-tax profits of £162m and hailing “significant progress” following huge losses the previous year. However, the supermarket warned that 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 discounters 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.

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

The department stores chain 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 £93.8m 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.