For the record, however, the market is expecting profit before tax of £3.6bn on sales of £65.8bn. Earnings per share are tipped to be 33.6p while the dividend – which is becoming a key appeal of the shares as an investment – is seen rising to 15.06p for the whole year from 14.46p the year before. However, Panmure Gordon thinks the group might freeze the final dividend, which would mean a full year pay-out of 14.72p.
“Following a Christmas LFL ex-fuel ex-VAT LFL of -2.3%, we expect our Q4/FY forecast of -1.7%/-0.9% to evidence a better exit rate,” says broker Nomura Securities. Translated into English, that means that after reporting a year-on-year fall in like-for-like (LFL) sales, excluding fuel and value added tax (VAT), of 2.3% over the Christmas period (the six weeks to January 7th), Tesco's fiscal fourth quarter LFL sales will be down 1.7% while LFL sales over the whole year will be down 0.9% compared to a year earlier, according to Nomura's predictions.
“Although partially supported by increased couponing/promotional activity, we expect the early signs of improvement to be viewed positively,” Nomura added.
The broker is forecasting a trading profit of £2,465m, which would represent a 5.7% trading margin. “Having implicitly guided to a 5%-plus UK trading margin for [fiscal] 12/13E … we think Tesco will add substance to its explanation of the UK reset by highlighting specific issues and remedies. Specifically, feedback from the 200 store trial adding more labour hours should provide tangible evidence from one of several key initiatives, and reassurance with respect to the level of investment required. Moreover, we also expect Tesco to outline plans to improve the ambience of stores by accelerating its rolling c.5-7 year ‘Refresh’ store refurbishment programme,” Nomura said.
The broker also expects Tesco to present a review of its property portfolio. “We expect Tesco to signal a phased reduction in its rate of UK space growth with a shift in emphasis away from large hypers towards smaller formats where it under-indexes versus the market. Sensibly, we expect multi-channel to be a key consideration with the potential to offer the UK’s most convenient click-and-collect network,” Nomura said.
Panmure Gordon has been doing a bit of shopping disguised as research – or possibly the other way round – and it thinks Tesco’s turnaround plan has a good chance of success. “However, as always, execution is key. Retailing is all about doing 1,000 small things correctly, the devil is in the detail, not in the Powerpoint presentation,” the broker observes.
Press reports suggest that a number of key shareholders have put pressure on Tesco to abandon its attempt to crack the USA. Investment analyst Sam Hart at Charles Stanley reckons the US operations’ losses will reduce from £186m last year to £120m. “The lower level of losses reflects a combination of a stronger sales performance and improved supply chain efficiency,” Hart said.
“Asia is forecast to report a 22% rise in operating profit to £695m. South Korea, Thailand, Malaysia and China are expected to have been the growth drivers. The under-performing business in Japan has been put up for sale and an update on the disposal process is anticipated,” Hart said.
“Europe is forecast to report a 9% increase in operating profit to £575m. Good growth in Poland, Turkey and Slovakia is expected to have more than offset softness in Ireland and Hungary,” Hart added.
Turning its attention to the fourth quarter trading update from Marks & Spencer (M&S), Panmure Gordon is forecasting LFL sales growth of 0.6% on the General Merchandise side, and notes that market forecasts for this metric are all over the place; the median forecast is for a 0.5% decline, with the range running from -1% at the bottom end to +1% at the top.
“For Food, we forecast like-for-like sales growth of 2.3%, with consensus on +1.5% (range 1-2%). We expect no change to the FY2012E [fiscal 2012] UK gross margin guidance of -40p [minus four-tenths of a percentage point], which management said in January would be mitigated by other cost savings – any slip up here will get a very unsympathetic reception,” Panmure Gordon reckons.
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