Tesco reports its half year results with a renewed flurry of excitement in the sector following Sainsbury’s results last week.
Food deflation and a highly competitive pricing environment continue to provide the backdrop, but with others outperforming, Tesco will be under pressure to prove the same.
Keith Bowman at Hargreaves Lansdown said: “First quarter UK like-for-like sales declined by 1.3%, with second quarter sales likely to have retreated by a similar amount.”
Particularly disheartening, was the latest market review from Kantar Worldpanel, which shows the company’s market share dropped 0.6 percentage points year-on-year in the 12 weeks to mid-September.
Overall sales fell by 1% in the period, while others, including Sainsbury’s, saw sales grow.
Continued pressure from discounters Aldi and Lidl, which both saw sales rise more than 16% year-on-year over the period, has also hit Tesco, and analysts aren’t convinced, at least in the short term, it will manage to keep pace.
Cantor Fitzgerald fears the results could be “very disappointing” for investors, adding that, in complete contrast to Sainsbury, it expects Tesco to issue more profit downgrades.
What, it says, is key for investors to watch for, is the strategy presented by “Drastic Dave” to rebuild cash generation and reduce debt by 2020.
The broker reckons this plan needs to be “very convincing” if Tesco is to avoid a rights issue and maintain the current share price.
Results from Gemfields may show a drop in reported earnings, but the team at SP Angel predicts earnings should pick up over the next two to three years.
Sales from Gemfields currently stand at around US$153mln but are set to grow to US$315mln in fiscal 2018, SP Angel said.
Significant announcements expected
Final: Ceres Power Holdings (LON:CWR), Gemfields (LON:GEM)
Economic: UK – BRC shop price, Manufacturing production, Industrial production, US – Mortgage applications, Crude oil inventories.