Tesco is expected to take heart from a rise in sales volumes across some of its key categories when it unveils its first-quarter sales on Friday.
Analysts predict that the embattled grocer will report a fall in like-for-like sales of between 2% and 2.5% for the first three months of its financial year, after big four rivals Sainsbury’s, Asda and Morrisons all reported similar dips during their first quarters.
But Tesco’s UK like-for-like sales volumes are expected to be flat overall, following a 1.5% rise in volumes during the final quarter of the 2014/15 financial year.
Speaking at the time of those results in April, boss Dave Lewis hailed the volume improvements as “a very important first step” in its road to recovery, “driven by better availability, service and pricing.”
“I’m not certain there is a huge amount of evidence yet that things Dave Lewis has specifically changed in the business in the last six to nine months have had an enormous effect.”
David Payne, Nomura
But Nomura analyst David Payne has warned the city not to “get carried away” by the figures. He insisted they are a product of overall changes across the grocery sector and are not a direct result of changes made by new boss Lewis.
Payne said: “Big four volumes overall are no longer as negative as they used to be. That’s not just down to Tesco competing better on price, that’s because the very rapid share gains that Aldi and Lidl were making last year and the extent to which the big four were cannibalising trade by continuing to add quite a lot of new space have both changed for the better compared to 12 months ago.
“Volume like-for-likes, not just for Tesco, but for the big four overall, have gone from around -5% to zero now. That’s the biggest factor by far, not the relative change for Tesco, but the absolute change for the sector.”
Payne added: “It’s true that a year ago Tesco and Morrisons were the losers within the big four, probably caused by some uncompetitive pricing in Tesco’s case, which they have done something about, mostly under the outgoing management rather than new things they have done in the last six months.
“So people shouldn’t get carried away about how much of a transformation this is. Tesco is no longer losing share and the big four as a whole are no longer bleeding volume, but I’m not certain there is a huge amount of evidence yet that things Dave Lewis has specifically changed in the business in the last six to nine months have had an enormous effect on the standing of the brand among consumers and therefore in the sales trends they are seeing.
“Most of what’s changed has been industry-wide. There’s a perception that [Tesco’s improvements] have been driven by pricing, changes to the offer and that Tesco is doing much better. But most of what’s better is the big four not building space and Aldi not taking share so quickly.”
Tesco will release its latest trading update just hours before its annual general meeting, where Lewis and his board are set to face a grilling from shareholders.
The grocer has had a turbulent 12 months as its sales slumped, it uncovered an accounting scandal and ushered in a new chairman, chief executive and finance director to repair the damage.
A torrid year for Tesco culminated in it reporting a pre-tax loss of £6.38bn – the biggest in the grocer’s history.
But plenty of questions remain, including how big the fines and penalties could be in the aftermath of the accounting scandal. The Serious Fraud Office is investigating the affair, while shareholders based in the UK and US have filed legal action.
Investors will also be keen to know how much money is required to sure up the balance sheet and are likely to press Lewis on how he will measure Tesco’s success this year.
As reported by Retail Week, the supermarket giant is also facing a backlash from shareholders over the £2.2m handed out to former chief executive Philip Clarke and ex-finance director Laurie McIlwee.
Fund manager trade body Investment Association has circulated an ‘amber top’ to members over the £1.2m package for former boss Clarke and the £1m given to McIlwee.