Tesco earnings to confirm recovery on track

<p>With Morrisons on track for its first rise in annual profits for 4 years and Sainsbury’s losing its lead in sales growth among the ‘Big 3′ supermarkets, retail investors will move their focus to Tesco next week ahead of its half-yearly earnings on Wednesday.</p>

 

With Morrisons on course for its first rise in annual profits for 4 years and Sainsbury’s losing its lead in sales growth among the ‘Big 3′ supermarkets, retail investors will move their focus to Tesco next week ahead of its half-yearly earnings on Wednesday.

 

Industry data released in September showed Tesco achieved its best 12-week sales performance for over two years, adding to evidence that the group’s recovery from several years of trouble is now well established.

 

Tesco is poised to post its first half-yearly rise in revenue since February 2015 with growth of 2.7% to £27.9bn.

 

Tesco’s overall pre-tax profit could almost double year-on-year to £333m for its half-year ending in August, though the jump will have been flattered by one-off effects.

 

Despite the positive internal news, aspects of the group’s troubled recent past have returned to haunt it in recent weeks, pausing a rise in its stock by 20% this year.

 

Lawyers for three former senior Tesco executives said they would plead not guilty to fraud after the men appeared in court for the first time since being charged in September.

 

Whilst the trio were dismissed by the group within months of the Serious Fraud Office’s probe beginning, investor disquiet has remained given that the SFO insists that its investigation is continuing.

 

Tesco issued a statement when charges were announced saying the last two years have seen an “extensive programme of change” at the firm. It has declined to comment further.

 

The size of Tesco’s pension deficit has also returned as a concern over the last week.

 

City forecasts, including by Tesco’s broker, Barclays, point to the deficit having risen an additional £3bn to stand at £5bn. If the forecast is correct a rise in annual payments to fund the deficit from £270m a year currently, may be required.

 

The increased burden is likely to delay the reinstatement of dividend payments by Tesco even further. The group will publish an update on its pension liability with its earnings report on Wednesday.

 

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