A preview of Tesco's (LSE: TSCO) upcoming half-year results.
All eyes will be on Tesco (LSE: TSCO) when it announces its interim results on Wednesday this week.
Britain's number one supermarket with a market share of over 30% -- streets ahead of rivals J Sainsbury (LSE:SBRY), Wm Morrison (LSE: MRW) and Wal-Mart-owned Asda -- issued its first profit warning in 20 years following poor Christmas trading.
Moreover, Tesco acknowledged its home market performance in 2011-12 reflected deeper-rooted problems. The group had been over-greedy in its UK business -- "running the stores too hot", as chief executive Philip Clarke put it -- to squeeze out cash to fund international expansion.
Tesco's results on Wednesday will give us an idea of how Mr Clarke's plans to get UK operations back on track are progressing. News on two or three other areas of the company's activities will also be keenly scrutinised by shareholders.
Group
Let's begin with Tesco's overall performance. How will the group have performed in the first half compared with last year's first half? And is it on track to meet analysts' consensus forecasts for this year's key full-year numbers? Here's your cut-out-and-fill-in table!
| | H1 2011/12 | FY 2011/12 | H1 2012/13 | Forecast FY 2012/13 | Forecast FY growth |
|---|
| Revenue* | £32.2bn | £65.2bn | ? | £67.2bn | +3.1% |
| Trading profit | £1.8bn | £3.8bn | ? | £3.6bn | -3.0% |
| Trading margin | 5.5% | 5.8% | ? | 5.4% | |
| Underlying profit before tax | £1.9bn | £3.9bn | ? | £3.8bn | -4.0% |
| Underlying earnings per share (eps) (diluted) | 18.3p | 37.4p | ? | 35.1p | -6.3% |
| Dividend per share | 4.63p | Final: 10.13p Total: 14.76p | ? | 14.83p | +0.5% |
* Excluding VAT, including petrol
In a June trading update, the company said: "At this early stage of the year, we are performing in line with market expectations for the Group." In spite of that, analysts' views on full-year eps vary widely from the consensus, ranging from a low of 29.9p to a high of 37.3p.
On trading profit, look out for how this number measures up against the forecast of one of Tesco's three house brokers for a first-half fall of 9% to just over £1.6bn.
Personally, I think the number to keep a particular eye on will be the level of the interim dividend, which could be the truest barometer of management's confidence in getting the UK business back on track this year. An interim above 4.8p would be very encouraging, a modest sub-inflationary increase would be in line with market expectations, and a flat dividend would suggest management could be cautious on how things are progressing. A dividend cut would be a real shocker.
UK operations
The key UK operational number to watch out for -- an indicator of how management action to turnaround the core home supermarket business is going -- is UK like-for-like sales (excluding VAT and petrol).
The table below shows the trajectory across the past five quarters.
| | Q1 2011/12 | H1 2011/12 | Q3 2011/12 | Q4 2011/12 | Q1 2012/13 |
|---|
| Growth | -0.1% | -0.9% | -0.9% | -1.6% | -1.5% |
Another quarter of -1.5% or, heaven forbid, a slide back to negative growth of worse than -1.5% would be hugely shocking. In fact, any negative growth worse than, say, -0.5% would be a disappointment. One of Tesco's house brokers is forecasting a flat UK performance for Q2, while another is actually forecasting positive like-for-likes of a modest 0.1%.
International operations
Tesco's nascent 'Fresh & Easy' US business is currently a small part of the group's international operations -- and a detractor from profits, being loss-making -- but it will perhaps be the part of global operations shareholders are most keen to hear news on. Earlier this year, the company put back the break-even date of Fresh & Easy from the current financial year to 2013-14.
As recently as last week, Tesco's chief executive insisted he would continue to persist with Fresh & Easy, having previously said there would be a significant reduction in losses during the current year.
In the first half of last year, Fresh & Easy made a trading loss of £73m on revenue of £300m. One of the house brokers has pencilled in a loss of £70m for this year's first half. A lack of progress or even a serious deterioration of prospects might not actually hurt Tesco's share price as a number of major shareholders have been calling for the company to pull out of the US.
Results checkout
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> G A Chester does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Tesco.
