If there was a chance of Tesco investors or its executive team getting carried away with recent momentum, this week could provide a reality check.
There is no doubting that the supermarket giant is turning a corner under group boss Dave Lewis and UK supremo Matt Davies, as sales and profits both head in the right direction – quarterly UK like-for-likes returned to growth for the first time in three years during the three months to February 27 and rose again in its second quarter.
But Lewis has cautioned on numerous occasions that “the job is not done” – and noises from analysts ahead of Tesco’s interim results on Wednesday have only served to support that view.
Yet their negative forecasts aren’t regarding trading within its core UK business, which is expected to post another encouraging like-for-like number this week as it continues to make noticeable strides.
Tesco has closed the gap to the discounters on price, the quality of its produce is improving, availability is solid, changes to store layouts have made the shopping trip easier for customers and adjustments to its range – including the introduction of its entry level Farms brands – have struck a chord with consumers.
Add good levels of customer service and third-party concessions such as Arcadia into the mix, and Tesco is slowly but surely coming up with a winning formula that is wooing shoppers back into its stores.
But while regaining competitiveness in its UK business is the central pillar of Lewis’s three-pronged strategy to turn Tesco around, it is supported to two vital others – protecting and strengthening the balance sheet and rebuilding trust and transparency – both of which have hit wobbles.
Tesco’s house broker, Barclays, has predicted that the grocer will reveal an eye-watering pension deficit on Wednesday morning, estimating that the black hole has ballooned by £3.3bn since the last valuation.
To put that into perspective, that equates to about 75% of the sum Tesco received a year ago for flogging off its international jewels, the South Korean Homeplus business. It will undoubtedly serve as a blow to Lewis’s drive to put Tesco back on a solid financial footing.
And another shadow has been cast ahead of the grocer’s half-year results by the outcome of the Serious Fraud Office investigation into the £263m accounting scandal, which resulted in three former executives – Chris Bush, Carl Rogberg and John Scouler – being charged.
Tesco may have left the episode firmly in the past, but the appearance of the trio in court later this month will only serve to remind stakeholders and shoppers of the catastrophe that caused so many people to lose faith in Britain’s biggest retailer in the first place.
But with the main weapon in Tesco’s armoury, its core grocery business, set to hit the target again at the half-year stage, Lewis should still have enough cause for optimism.