Business week ahead: Tesco in the spotlight

Supermarket giant Tesco delivers its half-year results on Wednesday, which are expected to show an improvement in its sales slowdown.

Tesco's half-year profits are forecast to have fallen heavily
Tesco's half-year profits are forecast to have fallen heavily
Tesco's half-year profits are forecast to have fallen heavily

Analysts at HSBC forecast the grocer’s interim like-for-like sales will have fallen by 1 per cent, compared to a 4.6 per cent slide a year ago.

However, the broker estimates this will lead to half-year operating profits tumbling by 58 per cent to £385 million compared to a year ago, as Tesco – led by chief executive Dave Lewis – recovers from a disastrous year when it reported losses of £6.4 billion largely due to property writedowns.

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Tesco last month agreed to sell its Homeplus operation in South Korea to a group of investors for £4bn in cash. The retailer said the disposal, expected to complete in the final three months of the year, subject to shareholder and regulatory approval, would lead to a “significant reduction” in its £4.2bn debt pile.

Earlier this week, rival Sainsbury’s delivered some welcome cheer from the under-pressure supermarket sector as it increased its profit outlook for the year after clawing back some lost sales.

Sainsbury’s unveiled a 1.1 per cent fall in like-for-like second-quarter sales – its seventh consecutive quarter of declines – but the performance was better than the 2.1 per cent decline seen in the previous three months. The group now expects full-year profits to be “moderately” ahead of the £548m expected in the City, although this is still a slump from the £681m reported a year ago.

Elsewhere in the retail sector, strong demand for its breakfasts and range of healthier products is expected to boost sales at Greggs when it posts a trading update on Tuesday.

Brokers at Shore Capital lifted their full-year pre-tax profit expectations for the firm by 3.1 per cent to £70.5m after strong half-year sales that were ahead of forecasts. The bakery chain saw pre-tax profit jump by 51 per cent to £25.6m in the six months to 4 July, with like-for-like takings up 5.9 per cent.

Monday brings the latest snapshot on the health of the UK’s powerhouse services sector, which expanded at its weakest pace for more than two years in August.

The Markit/Cips purchasing managers’ index (PMI) for the services arena, which accounts for more than two-thirds of the UK economy, showed a reading of 55.6 for the month – above the 50 level that indicates growth, but down on July’s result of 57.4.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “We expect the purchasing managers’ survey to indicate that service sector expansion picked up modestly in September after dipping to a 27-month low in August.”