The week ahead: It’s win some, lose some for the big supermarkets

By DOMINIC JEFF
Published on 01/10/2012 00:00

SUPERMARKET rivals Tesco and Sainsbury will go head-to-head in the City this week, having experienced contrasting fortunes in recent months.

The battle to turn Tesco’s UK performance around will be back in the spotlight on Wednesday, when the supermarket behemoth reports a slide in half-year profits.

Tesco is forecast by brokerage Shore Capital to report pre-tax profits of £1.5 billion for the six months to 25 August, a drop of 12 per cent on the same half last year.

The UK’s biggest retailer issued its first profit warning in 20 years in January and most recently reported a 1.5 per cent fall in underlying sales in the 13 weeks to 26 May – although this did not include the period around the Queen’s Diamond Jubilee.

Despite its latest quarterly sales decline, Tesco said its £1bn turnaround, which has seen it revamp 100 stores and recruit 4,300 more staff, is beginning to gain traction as it competes more convincingly with rivals. Chief executive Philip Clarke has assumed direct leadership of the UK arm and pulled in marketing and food experts from Tesco’s global businesses to oversee the turnaround.

However, Sainsbury will endeavour to keep up the pressure on Tesco when it posts a sales update for the second quarter of its financial year on the same day.

The UK’s third-biggest supermarket chain, which operates more than 1,000 stores, saw underlying sales rise 1.4 per cent in the first quarter, as the Queen’s Diamond Jubilee boosted demand for party food.

Sales are likely to have remained hard to come by in the subsequent 12 weeks, primarily due to the mixed weather and the consumer climate, though some food retailers reported a boost during the Olympics. Shore Capital expects sales growth of 1.5 per cent, with volumes likely to be flat or slightly lower.

Pedigree and Hobgoblin brewer Marston’s will reveal if the Olympics and mixed weather derailed its “F-plan” to focus on “food, families, females and forty and fifty-somethings” in a trading update on Thursday.

The Pitcher & Piano and Tavern Table firm has already reported a 2.2 per cent rise in like-for-like sales in the first 42 weeks of the year at its managed pubs, and analysts at Numis Securities expect the full-year update to be in line with this performance.

Douglas Jack, an analyst at Numis, predicts pre-tax profits for the full year to 29 September, which will be reported in November, will come in at £87 million, up from £80.4m last year.

He said: “We do not expect much change in underlying trading. The Olympics and mixed weather are likely to have been more detrimental than helpful to trading.”

Retail chain Halfords will be grateful for Bradley Wiggins when it updates on trading on Thursday after a torrid half-year that saw its chief executive step down amid news of a profit warning and a sharp sales decline.

David Wild quit immediately in July after like-for-like retail sales dropped 7.5 per cent in the 13 weeks to 29 June, as record rainfall impacted on sales of cycles and outdoor goods.

However, analysts believe the Wiggins effect will help return cycling sales to growth in the second quarter after the cyclist added Olympic gold to his Tour de France win.