All eyes are on Tesco on Friday, as it reports on fiscal first quarter trading.
The new boss, “Drastic” Dave Lewis, has been following the text book by “kitchen sinking” everything in sight to get as much bad news out of the way during his honeymoon period in order to reset expectations.
The company’s South Korean business is reportedly up for sale, and Google is said to be interested in the company’s Dunnhumby unit, the data gathering arm that was behind the success of the Tesco Clubcard.
Portuguese finance house BESI expects Tesco to show deteriorating like-for-like (LFL) sales comparisons.
It has pencilled in first quarter LFL sales will be down 1.6% year-on-year in the UK, which is better than the consensus forecast of -2.0% and similar to the preceding quarter, albeit on softer comparative figures from a year ago.
It predicts a 5.1% LFL sales decline in Asia, worse than the consensus forecast of 3.6% and the 4.7% decline suffered in the previous quarter.
“We remain concerned about the MERS outbreak in South Korea alongside falling inflation in Thailand and recent rate cuts by the government there to stimulate demand in the country,” BESI said.
The market is going for LFL sales growth of 0.7% but a less surly BESI goes for +1.1%.
The supermarket king remains in something of a hole, however.
“Our view remains that Tesco is best off with a rights issue, although we believe such a development is unlikely with poor LFL trends. The market may focus on ‘volumes’ but of course in the context of deflation, volumes should be positive,” BESI said.
“The entire market is gaining volume due to 3% deflation but we believe Tesco needs closer to 2% LFL to maintain its margins in the UK,” it added.
Significant announcements expected
Economic: EU – M3 money supply