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Tesco update should show revival continuing, but plenty of uncertainties for food retailers

Last updated: 06:00 16 Jun 2017 BST, First published: 11:29 15 Jun 2017 BST

Tesco store

After a fairly quiet week for corporate news, the main event finally arrives on Friday with a first-quarter trading update scheduled from UK retail giant Tesco PLC (LON:TSCO).

It’s been a troubling few years for the FTSE 100-listed group with price wars, failed expansion plans and, of course, an accounting scandal weighing heavily on the supermarket giant.

But there have been better signs more recently, with Tesco’s full-year results in April showing encouraging hints of a recovery in the UK and that revival is expected to have continued into the first quarter of 2017.

READ: Tesco slumps despite better-than-expected results

According to the latest Kantar WorldPanel data till roll data, Tesco saw its sales rise by 1.8% in the 12 weeks to 21 May, albeit with all of the ‘Big Four’ boosted by rising food prices.

That’s not too far from the estimates of UBS, with the Swiss bank expecting total group like-for-like sales growth of 1.7% for the three months ended March.

“If validated, this would represent Tesco's strongest quarter in the past seven years,” UBS analyst Daniel Ekstein said in a preview.

Tesco’s stronger performance of late has been driven by a more competitive UK offering; leveraging its purchasing power to put through lower inflation than some of its peers.

Away from UK numbers, investors will also be keeping an eye out on the performance from Tesco’s international business – which has underwhelmed in the past . UBS expects sales from abroad to have inched up 0.5% year-on-year.

An update on the Tesco’s extensive restructuring programme currently taking place and the £3.7bn takeover of Booker Group PLC (LON:BOK) would also be welcome – although any word on the latter is unlikely given that regulators only recent started a “standard phase 1 review” of the deal.

Brexit, election impact expected on SThree

Aside from Tesco, the only other trading news scheduled for Friday is from small cap staffing firm SThree PLC (LON:STHR) which should provide a snapshot of the impact of Brexit fears and the recent UK general election on the UK recruitment market.

In a first-quarter update back in March, SThree said growth in profit from its overseas business was offset by a slump in the UK, where gross profit fell by 19% hurt by  "Brexit uncertainty and public sector reforms".

On the economics front, with no UK data due after a busy week, the main focus will be on the release of the latest US housing starts and consumer sentiment numbers, particularly in the wake of this week’s interest rate hike by the US Federal Reserve.

The Bank of Japan’s latest monetary policy meeting should be a focus as well, although given a recent cut in first-quarter growth estimates and stubbornly low inflation they are unlikely to follow the Fed’s lead.

Significant announcements due on Friday June 16:

Trading updates: Tesco PLC (LON:TSCO), SThree PLC (LON:STHR)

Finals: Record PLC (LON:REC)

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