The Week Ahead: City awaits updates from Tesco and Greggs

Tesco chief executive Dave Lewis speaking to store staff.

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

Supermarket Tesco looks set to report an improved sales trend amid continued tough trading in the grocery market this week while the City will also see an update from bakery chain Greggs.

UK sales at Tesco are expected to have gained ground when it reports its half-year results on Wednesday, although the supermarket price war continues to bite.

Analysts at HSBC expect the grocer’s interim like-for-like sales to have fallen by 1%, compared to 4.6% slide a year ago.

But the broker estimates this will still lead to half-year operating profits tumbling by 58% compared with a year ago to £385million, as the supermarket recovers from a disastrous year when it reported losses of £6.4billion, largely due to property writedowns in April.

Analysts at Jefferies also expect the business, led by chief executive Dave Lewis who took over at Tesco following sliding sales under predecessor Philip Clarke, to reiterate that the country’s largest supermarket chain will operate under a leaner structure with a focus on its core UK market.

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Jefferies said this will mean an emphasis on simplifying ranges and promotions, reinvesting in customer service and striking new deals with its suppliers.

Over the last year the “Big Four” players in the UK grocery market – Tesco, Asda, Sainsbury’s and Morrisons – have battled discounters Aldi and Lidl for market share by cutting prices.

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Last week Sainsbury’s delivered some welcome cheer from the under-pressure sector as it increased its profit outlook for the year after narrowing sales falls.

The chain posted a 1.1% drop in like-for-like second-quarter sales, excluding fuel – its seventh quarter of falling sales in a row – but the decline was better than the 2.1% fall seen in the previous three months.

Sainsbury’s said it had seen the number of sales and transactions rise, adding that the decline in average basket spend in supermarkets had continued to stabilise.

Sainisbury’s now expects full-year profits will be “moderately” ahead of the £548m expected in the City, although this is still a sharp fall from the £681 million reported the previous year.

The latest till roll figures from respected research group Kantar Worldpanel for the 12 weeks to September 13 showed that Tesco, Britain’s biggest supermarket, saw sales slide 1% as its market share fell by 0.6% to 28.2% compared to a year ago.

Asda also saw its market share fall by 0.6% to 16.7%, with sales down by 2.9%, and sales at Morrisons decreased by 1.4%, taking its share down by 0.2% to 10.7%.

Sainsbury’s was the only one of the big four to show growth with sales rising by 0.9%, attracting 250,000 new shoppers through its doors, while holding its market share at 16.2%.

Earlier this month Tesco agreed to sell its South Korean business Homeplus in a £4.2bn deal in the latest phase of the supermarket group’s turnaround plan.

The division, which operates more than 1,000 stores, has been snapped up by a consortium of investors led by Korean private equity firm MBK Partners and including Canadian pension funds and Singapore sovereign wealth fund Temasek.

Chief executive Dave Lewis has embarked on a shake-up of Britain’s supermarket since taking over a year ago.

He has already announced plans to relocate its head office and shut down its final salary pension scheme as well as shutting 43 stores and axing plans to open 49 others.

Mr Lewis has also sold off Tesco Broadband and UK download business blinkbox.

The group has also been embroiled in scandal over an accounting black hole as large as £326m. The Serious Fraud Office is investigating.

Last October, Mr Lewis unveiled a new set of priorities to focus on regaining competitiveness in its UK business, to shore up its balance sheet and to “rebuild trust and transparency”.

Strong demand for its breakfasts and range of healthier products is expected to boost sales at Greggs when it posts a trading update on Tuesday.

Brokers at Shore Capital lifted the firm’s full-year pre-tax profit expectations by 3.1% to £70.5m, after strong half-year sales in July that were ahead of forecasts.

The group saw pre-tax profit jump by 51% to £25.6m in the six months to July 4 compared to a year ago, with like-for-like sales rising by 5.9%.

The firm, which trades from more than 1,600 sites, added that earnings for the full-year were expected to be slightly ahead of expectations.

It said breakfast remained the fastest growing part of its day with the menu extended to add new porridge and breakfast sandwich options, and three-quarters of shops now open by 7am.

The firm said its “balanced choice” range of sandwiches and flatbreads with fewer than 400 calories had also sold well.

The group continued its expansion adding a net 14 stores in the first half of the year, with between 20 and 30 shops scheduled to open over the full year.

It also refurbished 118 stores, and plans to upgrade between 200 and 220 shops over the 12 month period.

Brokers at N+1 singer backed the management’s strategy, led by chief executive Roger Whiteside, saying: “We firmly feel that Greggs’ business model is in great shape.”

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