Tesco set to unveil surprise sales lift in big turnaround
TESCO is set to announce a surprise sales uplift this week as chief executive Dave Lewis gives a bullish appraisal of its prospects.
The supermarket giant’s management is understood to be increasingly confident that the business is gaining momentum.
Respected Tesco analyst Dave McCarthy at HSBC believes it may say comparable store sales, the City’s prefered measure of healthy demand, increased by more than 1 per cent in the past three months. The news, due on Wednesday, that Dave Lewis has a firm grip on the company’s turnaround is likely to send a chill through rivals’ boardrooms.
‘Tesco’s sales momentum is set to continue building. Tesco is on a virtuous circle and is pulling many suppliers along with it to mutual benefit,’ said McCarthy in a research report.
Lewis, widely referred to as ‘Drastic Dave’, arrived in September 2014 to a business in turmoil. Within a month he uncovered a £326million accounting black hole, which resulted in the suspension of several directors and an ongoing investigation by the Serious Fraud Office.
The company may have benefitted from price cuts stimulating volume growth, McCarthy said. He also said the way market research firms track Tesco sales, relating to the way big supermarkets redeem vouchers, could have masked Tesco’s recent sales performance.
Lewis expects operating profit – an underlying figure that strips out one-off costs – to be no higher than about £950million for the year to February 2016 and has vowed to plough any additional funds raised straight back into the business.
Tesco lost £6.4billion the previous year on a pre-tax basis, which includes the costs of rescuing the business from its accounting crisis. Forecasts for this year’s pre-tax profit range from £294million to £897million. Analyst Clive Black at stockbroker Shore Capital said: ‘Given the shambles management inherited, the stabilisation is creditable and important. We expect to see a much more resilient Tesco at the results presentation, one that is more confident about its future.’
Lewis hopes that its own-label Farm brands will establish a battle line to combat discounters Aldi and Lidl. He is also expected to say he cut debt to about £5 billion by selling Tesco’s South Korean supermarket chain.
Analysts will be keen to hear how other changes to the business have affected its total liabilities, including debt, pension deficit and lease commitments, which were previously close to £20billion – a staggering sum when compared with Tesco’s £15.5billion market value.
Tesco is facing a cluster of Government measures that will lift its costs amid uncertain consumer spending, including rises to the minimum hourly wage and the Apprenticeship Levy expected to cost businesses £2 billion a year.