Tesco will unveil its full-year results on Wednesday, including an expected £5bn loss. Retail Week highlights five key areas to look out for.

Tesco will unveil its full-year results on Wednesday, including an expected £5bn loss. Retail Week highlights five key areas to look out for.

Rebuilding UK sales

Chief executive Dave Lewis put the performance of Tesco’s UK stores at the heart of his recovery strategy, investing in putting more staff in stores, improving the availability of products and in price cuts. Those led to better-than-expected results during the Christmas period.

Figures from Kantar Worldpanel suggest that sales are continuing on an upward trajectory. It reported Tesco’s sales increased 0.3% year on year for the 12 weeks to February 1 – the first time they had grown since January 2014.

That trend was sustained with another 0.3% increase in the 12 weeks to March 29, Kantar said, although the grocer’s market share dipped slightly.

Reports emerging over the weekend that suggested Tesco is preparing to reveal a £5bn loss on Wednesday, owing to property write downs.

But the potential of a much-needed improvement in the grocer’s UK performance for the 2014/15 financial year would go a long way to appeasing the City.

Rebuilding trust with customers

Trust and transparency have been two words that have cropped up a lot since news of the grocer’s £263m accounting scandal broke. Lewis has had to rebuild the retailer’s reputation and regain its position as what he called “the customers’ champion”.

Tesco doesn’t want to become another Asda and can’t cut prices to the levels of Aldi and Lidl, but has instead focused on returning to the roots that made it so successful in the first place – as a trusted place for customers to shop.

Lewis has targeted the grocer’s investment in price on brands, while improving store and customer service standards by giving head office staff time on the shopfloor.

Tesco has also been on a health drive, reducing the calorie-count in its own-label soft drinks and taking packets of sweets away from the checkouts as the modern customer places added emphasis on health and wellbeing.

An ICM poll conducted exclusively for Retail Week earlier this year revealed that Tesco’s lower prices were starting to hit home with shoppers, which is a key part of Lewis’s bid to win back disillusioned customers.

Wednesday’s results will provide him with another opportunity to demonstrate the progress Tesco is making in this area.  

Retail Week takes a look at the habits of grocery shoppers, 63% of whom have attempted to cut spending on food in 2015.

Strengthening the balance sheet

Analysts predict this could be the area from which the most “new news” emerges on Wednesday morning, with some numbers potentially affecting the share price.

Tesco’s debt, including the costs of capitalised long leases and the pension deficit, is £22bn “and that is a figure we have to start thinking about”, Lewis said two months ago.

A key element of his plan has been to sell off excess space, while taking full ownership of certain properties to remove inflation adjustments from future rents.

Last month Tesco swapped some of its mall space for control of leasehold properties in a mega deal with British Land. Further simplification of the supermarket giant’s property portfolio could well be revealed on Wednesday.

Elsewhere, the supermarket giant’s interim results in October revealed its pension deficit had surged to £3.4bn after tax and the City believe full-year results will show the deficit has now grown to £6.38bn.

Tesco house broker Deutsche Bank estimated that Lewis will have to commit an additional £250m a year to plug the black hole, details of which might emerge on Wednesday.

Tesco has already confirmed to shareholders that there will be no dividend this year and analysts expect a similar stance next year. Is it too early for the grocer to set out a longer term dividend policy, or will details be reported on Wednesday?

Disposals

As part of his bid to strengthen Tesco’s bottom line, Lewis has embarked on a radical restructure of the business and its assets.

He used Tesco’s third-quarter results briefing in January to reveal that Blinkbox and Tesco Broadband had been sold to TalkTalk. While these sales didn’t raise much capital, it ridded the balance sheet of loss-making assets.

The sale of its data arm, Dunnhumby, which helped build Tesco Clubcard, has been mooted for some time and Wednesday would be as good a time as any to announce any progress or, potentially, a deal. This would be timely to offset the news of pension liability increases.

Meanwhile, the grocer’s food business Giraffe is up for sale, while a disposal of coffee shop chain Harris + Hoole would not be beyond the realms of possibility either, particularly after the man in charge of the “new food experiences”, Michael Holmes, left Tesco last month. A sale of garden centre business Dobbies has also been mooted.

Making better use of larger stores

The big four grocers are on a drive to make better use of their huge sheds, with Tesco’s rivals Sainsbury’s revealing a deal for Argos to open digital stores in its larger shops, while Asda is set to launch a trial with sportswear giant Decathlon at its Watford supermarket.

Tesco has already unveiled plans to close 43 unprofitable stores and shelve refurbishment plans at 49 other locations as Lewis and his senior management team evaluate its store estate.

But the grocer is still lumbered with dozens of huge locations that are out of kilter with modern day shopping habits, which have seen customers lean towards convenience stores and shopping for their groceries online.

Lewis is actively looking to make better use of the excess space in its larger stores and could follow the partnerships route taken by its big four rivals.

Tesco has already had several trials for partnerships in the UK having worked with Sports Direct in Eastern Europe and Wednesday would be the perfect time to report any progress in this area.

But partnerships are far from the only option available to Lewis. Sub-letting of space could be preferred to a partnership, while Tesco could also start to designate more space to non-food, including its F&F clothing brand and homeware ranges.