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Week Ahead: Tesco looking for something a bit more drastic

Last updated: 15:15 20 Jun 2016 AEST, First published: 15:30 19 Jun 2016 AEST

CEO Dave Lewis

Supermarket chain Tesco has been busy executing its back to basics strategy with the sale of extraneous parts of the business.

The Giraffe restaurant chain and the 2007 acquisition, Dobbies Garden Centres, have both been sold off this month, leaving the decks clear on Thursday to focus on the performance of the core supermarket business.

The shares are up a few pence on the year but not far off the five-year low and pressure must be mounting on Dave Lewis, as the two-year anniversary of his appointment as chief executive approaches, to prove he is capable of more than just selling off the rag-bag collection of businesses his predecessors bought.

“The fourth quarter sales growth in April was encouraging but was dampened by concerns over the group's cautious outlook over its ability to hit market estimates for the year ahead and the need for increased future investment,” observed Graham Spooner, an investment research analyst at The Share Centre.

“Fierce price competition and promotions are likely to remain a squeeze on margins for some time,” he added.

Shares in Costa Coffee and Premier Inn owner Whitbread are down 11% or so this year, and have been up and down since the prelims were announced on 26 April, slipping as low as 3,802p and rising as high as 4,356p.

The word on trading in the current financial year back in April was a bit equivocal, but understandably so given the difficulty in factoring in the impact of the ever-shifting Easter holiday into the like-for-like comparisons.

A clear picture should emerge in Tuesday’s trading update, though Numis Securities is inclined to be cautious.

It is not expecting any dramatic increase in revenue per available room – the key metric in the hotel business – at Premier Inn this year and reckons there has been growing evidence of softer trading in the UK hotel market, especially in London.

“Given the poor weather April may have been a better month for Costa, but we remain concerned that competitive pressures are intensifying in the coffee/fresh food market as business models converge. Management has also acknowledged the need to invest across both brands in a number of common areas: teams, IT infrastructure, digital and productivity and efficiency. We believe that this, in combination with a more competitive market environment, will result in relatively lacklustre earnings growth in the near term,” Numis said.

On the same day as Whitbread brings out its trading update, photo booths and laundromat operator Photo-Me brings out its finals.

The market is expecting pre-tax profit of £40mln on revenue of £192mln.

The company has pledged to boost its dividends so investors will be keen to see how generous it is going to be.

 

Monday

Finals: Majestic Wine PLC (LON:WINE)

Tuesday

Finals: Photo-Me International plc (LON:PHTM)

Trading statements: Petrofac PLC (LON:PFC), Whitbread plc (LON:WTB),

Wednesday

Trading statements: Debenhams PLC (LON:DEB)

Thursday

Finals: Smith (DS) PLC (LON:SMDS)

Trading statements: Go-Ahead Group PLC (LON:GOG), Tesco PLC (LON:TSCO)

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