City expects to see signs of Tesco turnaround as Poundland’s slide continues
THE City expects to see signs of a turnaround at supermarket giant Tesco, but is braced for a slide in profits at discount retailer Poundland.
Tesco is poised to show that its turnaround plan has stemmed losses and has started to build sales when it posts its annual results on Wednesday.
The City expects the UK’s largest supermarket to reveal underlying full-year pre-tax profits down three per cent to £932 million, a vast improvement on the 68 per cent fall it reported a year ago. Taking into account a massive writedown on the value of the supermarket’s property portfolio, it posted an overall £6.4 billion annual loss, as the group also saw sales collapse at its core UK business.
However, data last week from respected research body Kantar Worldpanel said Tesco improved its sales for the fourth month in a row, adding that sales slipped by just 0.2 per cent in the 12 weeks to March 27.
This comes after the business reported a surprise 1.3 per cent rise in like-for-like sales over the six weeks to January 9, covering the crucial Christmas period.
Analysts said the supermarket’s recent performance is a further sign that chief executive Dave Lewis is turning the massive business around, since taking over from previous boss Philip Clarke in September 2014.
The moves mark a welcome improvement after a grim couple of years, with Tesco uncovering a £326m accounting black hole in autumn 2014 that plunged the group into crisis.
Trading across the sector has been hit amid falling food prices, compounded by a price war sparked by the increasing might of discounters Aldi and Lidl.
Tesco has shut 53 unprofitable stores since the start of its financial year and shelved plans to open a further 49 stores.
Mr Lewis has also cut prices across hundreds of lines, while making a raft of changes such as shutting Tesco’s final salary pension scheme, disposing of its loss-making Blinkbox operation selling online videos, and moving its main headquarters from Cheshunt to Welwyn Garden City in a measure expected to save £250m.
Analysts at Shore Capital said Tesco “is now operating more on the front foot in the UK”.
The broker added: “We believe that the major programme of cost reduction set around the mantra of simplification has delivered results that are evident in store.”
Discount retailer Poundland is expected to feel the strain of tougher trading on the high street when it posts a full-year update on Thursday.
Analysts at Shore Capital said it expects Europe’s biggest set-price retailer to report annual underlying pre-tax profits down 9.6 per cent to £39.5m, following lacklustre sales at Christmas.
Shore Capital added that following Poundland’s “disappointing third-quarter update” it expects high street conditions will “remain challenging”, forecasting the retailer will post like-for-like sales ranging between minus four per cent and minus five per cent.
The West Midlands-based group, which runs 628 stores, said in January it expected annual profits would be at the lower end of its £39.8m to £45.8m range, after it said high street footfall was below last year’s level over the festive period.
Poundland is also going through a period of rapid change, following its acquisition of 99p Stores for £55m, cleared by competition authorities in September. Poundland boss Jim McCarthy has since admitted that the 99p Stores business was “in a mess” at handover. Weekly Dividend Service Update period 11th to 15th April 2016 Today: Aluminium Bahrain B.S.C. USD 0.07294 (global depositary receipts), Colefax Group PLC 2.20p. Tomorrow: Diageo PLC 1.30004p (American depositary receipts), Go-Ahead Group PLC 28.33p, Shire PLC (New Co.) 15.32p. Thursday: Athelney Trust PLC 7.90p, GlaxoSmithKline PLC 43p, Low & Bonar PLC 1.80p. Friday: Abcam PLC 2.354p, Grafton Group PLC 8p, Regional REIT Ltd. 0.6572p, Regional REIT Ltd. 0.3428p, 32Red PLC 1.70p, Trifast PLC 0.80p, Waterman Group PLC 1.20p.