Wednesday preview: Tesco and Sainsbury go head to head

4th Oct 2011 17:54

Tesco's interim figures on Wednesday are eagerly awaited, given the recent change in strategy of the company in favour of an "every day low prices" approach rather than a promotions-led policy, such as the double Clubcard points offers the firm has provided in the past.The interesting question is whether the change in tack is simply a case of relatively new chief executive, Philip Clarke, continuing to put his stamp on the company, or whether it is a case of Tesco desperately trying to prevent its UK market share falling below the psychologically important 30% mark.There have been suggestions that Tesco has taken its eye off the ball in its home market, because it sees greater growth opportunities overseas. The interim report may provide detail on how well the overseas operations are doing, especially the US Fresh & Easy venture, which is beginning to hit its stride after a faltering start.Broker Nomura expects the supermarket titan to report interim trading profit of £1,827m which, excluding the aborted Japanese enterprise, represents 7% growth year-on-year. Seymour Pierce, meanwhile is going for trading profit of £1,884m and underlying profit before tax of £1,734m. Seymour Pierce thinks the interim dividend will be hiked to 4.3%."Without the boon of Royal Wedding/sunny Easter trading, we believe Q2 [second quarter] was more subdued in the UK. However, we expect UK trading profits to grow in line with ex-fuel sales at +3.9% (£1,266m, 6.01% revenues)," Nomura said."Underscoring the strategic foresight of overseas expansion, we expect strong space growth, +1.6% LFLs [like-for-likes] and double-digit profit growth. Within the mix, an 11% LFL at Fresh & Easy should begin to reduce losses," Nomura added.Seymour Pierce would like to see Tesco's management provide early feedback on its "Big Price Drop" initiative, but suspects it will be disappointed in this desire."Non-food is likely to have continued to struggle, with electricals in particular suffering from World Cup comparables, and a pedestrian Banking performance is expected. More positive news is expected internationally and, reduced losses are expected in the US," Seymour Pierce suggested.Rival supermarket J. Sainsbury has certainly sharpened up its act in recent years and has put a crimp on Tesco's domestic growth ambitions. As with Tesco, the second quarter may pale in comparison with the first when sunny weather and the UK royal wedding gave a boost to takings, though, according to Seymour Pierce, "industry data suggests that its sales have held up well over the summer despite tougher year-on-year comparables."Consequently, the broker expects Sainsbury to report a similar second quarter LFL sales number to the 12 weeks to 11 June when it reported LFL sales excluding petrol and including Value Added Tax to be up 1.9%. "More aggressive petrol promotions from Sainsbury have been a feature over the summer (Q2) so, together with falling industry volumes generally, we do expect management to remain cautious on outlook. The market will certainly be interested on any comment on the rebranding to 'Living Well for Less' and the potential impact from Tesco's 'Big Price Drop' on industry pricing," the broker suggested. On the economic front, the UK Purchasing Managers' Index Service Sector Survey is expected to have kept its head above 50 - the level that separates an expansion of activity from a contraction - in September, but only just. Market consensus forecast is for a reading of 50.5, down from August's 51.1.The final reading of the second quarter gross domestic product data for the UK is expected to show quarterly growth of 0.2%, and year-on-year growth of 0.7%. On the UK plc trading front, the second quarter current account deficit is tipped to widen to £10.6bn from the first quarter reading of -£9.4bn.INTERIMSTescoINTERIM DIVIDEND PAYMENT DATEARM Holdings, Greencore Group, Novae Group, Rathbone Brothers, TimeweaveINTERIM EX-DIVIDEND DATEAdvanced Medical Solutions Group, AG Barr, Bodycote, Brammer, Camellia, Charles Taylor Consulting, Dillistone Group, Downing Absolute Income VCT 1 'C' Shares , F&C Asset Management, Fisher (James) & Sons, Goals Soccer Centres, GVC Holdings, Henry Boot, Huntsworth, Hydrogen Group, Inmarsat, Judges Scientific, Keller Group, Kingfisher, Lighthouse Group, Martin Currie Global Portfolio Trust, Morson Group, Motivcom, Nationwide Accident Repair Services, New Britain Palm Oil Ltd. (DI), Petropavlovsk, Primary Health Properties, Raven Russia Ltd., Severfield-Rowen, SIG, StatPro Group, Weir GroupQUARTERLY EX-DIVIDEND DATEBritish Land Co, Investors Capital Trust 'A' Shares, Merchants Trust, Torchmark Corp.INTERNATIONAL ECONOMIC ANNOUNCEMENTSPMI Service Sector (FRA) (08:50)PMI Composite (GER) (08:55)PMI Services (GER) (08:55)PMI Services (EU) (09:00)PMI Composite (EU) (09:00)Retail Sales (EU) (10:00)Gross Domestic Product (2nd release) (EU) (10:00)ADP Employment Change (13:15)ISM Non-Manufacturing (US) (15:00)ISM Services (US) (15:00)MBA Mortgage Applications (US) (12:00)Crude Oil Inventories (US) (15:30)Q4SportingbetGMSStrathdon InvestmentsFINALSImperial Innovations Group, SportingbetIMSSDunelm GroupSPECIAL DIVIDEND PAYMENT DATEPolo Resources Ltd. (DI)TRADING ANNOUNCEMENTSMarston's, Sainsbury (J), Tricorn GroupUK ECONOMIC ANNOUNCEMENTSBRC Shop Price Index (00:01)Balance of Payments (09:30)Current Account (09:30)Gross Domestic Product (quarterly national accounts) (09:30)Official Reserves (09:30)PMI Services (09:30)FINAL DIVIDEND PAYMENT DATEBetfair Group, Iomart Group, Newmark Security PLC, PZ Cussons, Stagecoach GroupFINAL EX-DIVIDEND DATEAbbey, Alumasc Group, Begbies Traynor Group, City of London Investment Group, Eckoh, Edge Performance VCT 'C' Shares, Edge Performance VCT 'D' Shares, Edge Performance VCT 'E' Shares, Edge Performance VCT 'F' Shares, Fidelity Asian Values, Galliford Try, Haynes Publishing Group, Pacific Horizon Inv Trust, Petmin Ltd. (DI), Produce Investment, Qatar Investment Fund, Ruffer Investment Company Ltd., Tricorn Group, Utilico Investments Ltd (DI), Zetar--jh