| | Sunday 10 June 2012 A MESSAGE FROM TOM by Tom Winnifrith Yes I love My Fair Lady. A wonderful film and I remember seeing a stage version with Tony Britton and Liz Robertson which was pretty stunning. But this is about PIIGS not Pygmalion. A while back the leaders of the Evil Empire told us that Greece, Eire and Portugal would be bailed out of “local difficulties” and that a line in the sand had been drawn under the Euro crisis...
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The Week Ahead Tesco and Sainsbury square up
Next week will see another instalment in the battle between supermarket giants Sainsbury and Tesco, as both issue trading updates.
Broker Jefferies thinks Tesco's first quarter update, out on Monday, should confirm group sales growth of 2.6%, or nearly 4% excluding foreign exchange effects.
Tesco's first quarter runs to May 25th so last year's figures will include the boost from the Royal Wedding while this year's numbers will not get much benefit, if any, from the Queen's jubilee celebrations.
The broker is assuming a slight improvement in like-for-like (LFL) momentum in most of the geographic regions in which Tesco operates, but the supermarket titan may have to go some to step up LFL growth in the US, where the comparative figures are tough.
"On a divisional basis we estimate UK retail gains of 2.4%, international to grow by 2.5% (or 6.2% ex forex), and Tesco Bank to advance by 10%. This trajectory of performance would be slightly ahead of our modelling assumptions for the year (as comparables for UK sales soften considerably from here). Given recent currency movements we see little scope for forecast changes at this juncture," the broker opines.
Of course, with pundits far and wide suggesting that Tesco has taken its eye off the ball in recent years in its home market, the key number everyone is likely to be looking at is UK LFL sales growth or, more probably, contraction.
Jefferies forecasts UK LFL sales will be down 1.3% excluding fuel. Tesco is not used to LFL sales declining, but if Jefferies's forecast is correct then it will at least represent an improvement on the 1.6% slide in the firm's fourth quarter and the 2.3% reduction over Christmas.
On the other hand, Nomura is more pessimistic and predicts a LFL decline excluding fuel of 1.7% for the UK, bearing in mind the wet late April/early May weather.
"Changes to stores (whether on staff levels or on the fit-out) remain in the early stages, but we expect Tesco's step-up in promotional activity to have provided greater trading resilience," Jefferies said.
Nomura says it is too early for numbers to be released for the shops Tesco has souped-up as part of its turnaround plan for the UK, but the broker is expecting commentary relating to the implementation of the labour phase of what it calls the "UK reset".
"Following the 200-store trial, and using 4,000 specially trained managers, Tesco began the roll-out of its labour investment in late April into 450 large stores. We look for anecdotal updates on the progress of this initiative and potentially others to provide reassurance that the reset remains on track," Nomura said.
As for the increasingly overseas operations, Jefferies reckons Europe will see LFL sales rise 0.5%, with Asia flat and the US up 7%.
Nomura's predictions are for Europe to be down 0.2% on a LFL basis, Asia 0.4% lower (LFL), and the US up 5% on a LFL basis.
Panmure Gordon said it is not looking for any fireworks from Tesco. "We look for -1% like-for-like sales, compared with -1.6% in Q4 [fourth quarter]. We expect International like-for-like sales growth to have improved slightly to 0.5%, with the US ahead by mid-single digits (against tough comparisons)," Panmure Gordon said.
The same broker thinks Sainsbury's headline numbers will look a lot better than Tesco's, especially as Sainsbury's figures will include the benefit of the jubilee week-end.
"We look for like-for-like sales growth of just over 2% (ex-fuel), compared with 2.6% in Q4 and 1.0% in Q1 last year. This would equate to similar two year growth to that achieved in Q4 (excluding the impact of VAT)," Panmure Gordon said.
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BOOK OF THE WEEK By Nicholas Wapshott
A book review by James Faulkner of WatsHot.com The General Theory. The Road to Serfdom. These books have become the bibles of opposite ends of the economic and political spectrum. The men who wrote them - John Maynard Keynes and Friedrich August von Hayek - were intellectual opponents who managed to maintain a friendship in spite of their sometimes acerbic criticism of one another. Their work has influenced the economic policies of governments from the Great Depression to the present-day Financial Crisis. In Keynes - Hayek, Nicholas Wapshott plots the trajectory of their intellectual duel - a running battle that is still being fought to this day despite the passing of its original protagonists - and its impact on all our lives.
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ALTERNATIVE BET OF THE WEEK
Your local betting shop may be great for the footie, but you must go online for the truly weird bets.
This week: Greece is preparing for the second general election of 2012 as they fight economic meltdown. Which party will have the largest number of seats?
Singles only. Applies to the party that receives the highest vote share in the June 2012 Greek general election. Others on request. Dead heat rules may apply.
| New Democracy - ND | 4/7 | | Coalition of the Radical Left - SYRIZA | 5/4 | | Panhellenic Socialist Movement - PASOK | 25/1 | | Independent Greeks - ANEL | 33/1 | | Democratic Left - DIMAR | 40/1 | | Golden Dawn - XA | 100/1 | | Communist Party of Greece - KKE | 100/1 |
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