Shares in Britain’s largest supermarket have been essentially flat over the past year but have risen 10% over the past month, suggesting hopes for a continuation of the solid start to its financial year, with rumours also swirling that Tesco is looking to offload its Polish business.
Like-for-like sales were up 0.8% in the UK and Ireland for the first 13 weeks to 25 May, its fourteenth straight quarter of growth, but this was slower than in previous quarters and saw group LFLs flatten off to just 0.2%.
"The worry is that Tesco is working very hard with little to show for its efforts" said Neil Wilson at Markets.com.
"The UK grocery market remains structurally tough with competition as fierce as ever, and cyclically challenged as we head towards Brexit. Management said in Q1 that they outperformed in a subdued market and we should expect more of this kind of language."
Analysts at Shore Capital were expecting the supermarket to keep up what it saw as decent UK trading over the summer months in view of tough comparatives from last year’s hot, football-fuelled summer.
But a sticking point may be the FTSE 100 grocer’s discount brand, Jack’s, which despite much fanfare at launch a year ago was in the news in the past week as the first high-profile store conversion was embarrassingly changed back from a Jack’s to a Tesco’s.
Wednesday’s eyes will also be fixed on the progress the supermarket has made in raising operating profit margins to its target range of between 3.5% and 4%, and if there is has been a healthy increase from half-year dividend of 1.67p a year ago.
UK construction PMI awaited
On the macro front, Wednesday’s UK construction PMI is expected to continue posting declines as domestic uncertainty continues to rattle the industry.
While the UK’s manufacturing PMI managed to hit a four-month high on Tuesday of 48.3 from 47.4 in August, it failed to move above 50, which marks a shift to growth from contraction, and some are expecting the construction sector to also continue on a downward trend.
Analysts at RBC are expecting construction to mirror manufacturing in showing a “sustained period of weakness” as uncertainty continues to weigh, particularly on commercial building activity.
It could be worth watching for fallout among shares in the construction sector.
Significant announcements expected for Wednesday 2 October:
Economic data: BRC shop price index, UK construction PMI, US MBA mortgage applications, US ADP employment