Market Watch: Tesco toils as sales struggle to make progress

Tesco's half-year results on Tuesday are expected to reflect a tougher period for the UK's number one supermarket.

The chain's first quarter was particularly poor, with UK sales almost grinding to a near halt - at 1.1 per cent - as the grocer wrestled with plunging food inflation.

Analysts are expecting some sales improvement in the second quarter, to around 1.3 per cent, according to Credit Suisse, while market forecasts for pre-tax profits show a rise to 1.6 billion, compared with 1.42bn a year earlier.

The supermarket faces one of its biggest management upheavals, with chief executive Sir Terry Leahy stepping down after 14 years with the business in March. He will be replaced by international and IT director Philip Clarke.

Dave McCarthy, analyst at Evolution Securities, said UK growth is expected to remain weak in comparison to performance in previous years.

The most recent figures from Kantar Worldpanel show Tesco's market share slipping to 30.8 per cent from 30.9 per cent, with growth trailing behind the likes of Sainsbury's and Waitrose.

Tesco has launched its biggest ever Halloween campaign and said it expected to sell 55 million worth of Halloween- related goods this year.

But McCarthy said: "Tesco is underperforming UK peers, is struggling to generate strong international returns and is undergoing a significant management upheaval. These factors present considerable risk which we feel is not reflected in the share price."

Analysts have predicted nearly 3 per cent like-for-like growth for Sainsbury's in the second quarter, ahead of the company's own expectations of 2 per cent and up on the 1 per cent growth it saw in the first quarter.

The City will be hoping for payback from Sainsbury's investment in non-food sales and in store space expansion, as well as news on current trading following a relaunch of its upmarket range.

The UK's third largest supermarket - which has identified non-food sales and smaller convenience-style stores as key areas of growth - remains on track to open 1.45 million square feet in new space during the current financial year as competition for hard-pressed shoppers intensifies.

Last month, the supermarket revealed a multi-million-pound overhaul of its Taste the Difference range.

Its recent resurgence has seen its market share rise to 16 per cent from 15.8 per cent a year earlier, according to Kantar Worldpanel figures, and it is forecast to turn in a full-year profit of 655m, up from 610m last year.

Fashion retailer Ted Baker is expected to deliver a strong set of half-year results on Thursday after its spring and summer ranges boosted sales.

The designer invested heavily in its product ranges throughout the financial crisis, and the strategy is starting to pay off with growth in retail sales in the UK and US. It posted a 10 per cent increase in like-for-like sales in the first quarter.

Its wholesale business moved into positive territory in the first quarter, after double-digit declines for two years, while the company continues to expand its footprint. The firm has 43 stores in the UK and Europe - including branches in Glasgow and Livingston - plus 151 concessions.

Analysts lifted profit targets after the designer's last update in June. Ted Baker is expected to turn in full-year profits of 23.5m, compared with 20.3m last year.

Marston's, which brews beers including Pedigree, Oxford Gold and Cumberland Ale, will report on trading on Wednesday after a marked recovery over the past year.

The group returned to growth in revenues and profits at the half-year stage despite tough conditions.

Marston's, which also runs the Pitcher & Piano and Tavern Table pub chains south of the Border, reported underlying profits up 0.4 per cent to 27.8m in the six months to 3 April.

Its managed estate has benefited from further expansion into the pub restaurant sector, while profits in the leased arm have also improved.

The market consensus is for a 4 per cent rise in full-year profits to 73.4m.