Eyes Down For Tesco PLC's Results

The Motley Fool

Top British supermarket Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) is due to announce its annual results on Wednesday this coming week (17 April).

At the time of writing, Tesco's shares are trading at 380p - up 17% from a year ago compared with a 13% rise for the FTSE 100.

How will Tesco's businesses have performed in 2012/13 compared with the previous year? And will the results justify the strong performance of the shares? Here's your cut-out-and-check results table!

FY 2011/12

Forecast
FY 2012/13

Forecast
growth

Revenue (excluding VAT, including petrol)

£65.2bn

£66.2bn

+1.6%

Trading profit

£3.8bn

£3.4bn

-9.6%

Trading margin

5.8%

5.1%

Underlying profit before tax

£3.9bn

£3.5bn

-10.6%

Underlying earnings per share (EPS) (diluted)

37.41p

33.23p

-11.2%

Dividend per share

14.76p

14.68p

-0.5%

Source: Tesco website

Tesco's results for the year ended 23 February 2013 will take in the first full year since the company's shock profit warning of January 2012. The performance of the UK business was the cause of the profit warning, and chief executive Philip Clarke pledged £1bn of investment to get the core home operations back on track.

The success of the strategy -- if it comes -- won't be visible in the 2012/13 numbers. Analysts are expecting modest revenue growth of £1bn (1.6%), but a £4bn drop in profits (down in the region of 10%) -- with EPS falling just over 11%.

The current forecasts are actually poorer than six months ago when analysts had penciled in revenue growth of around 3% and only mid-single-digit profit and EPS declines.

UK operations

The key UK operational number to watch out for is like-for-like sales (excluding VAT and petrol). The table below shows the trajectory across the past seven quarters.

Q1 2011/12

Q2 2011/12

Q3 2011/12

Q4 2011/12

Q1 2012/13

Q2 2012/13

Q3 2012/13

Growth

-0.1%

-0.9%

-0.9%

-1.6%

-1.5%

+0.1%

-0.6%

Tesco managed to stem the tide of declining like-for-like numbers in the most recent second quarter, but like-for-likes turned negative again in Q3. Keep an eye on the Q4 number, which should be pretty decent given the comparison is with the poor Christmas trading period that resulted in the profit warning.

At the Q3 stage Tesco said most of its focus to date had been on the food business, which showed like-for-like sales up 1.2% for the quarter. As such, watch out for the split between food and non-food in Q4. Will Tesco have made any progress in turning around non-food? If not, what plans are there for doing so?

Finally -- and perhaps the acid test of Mr Clarke's strategy -- is whether getting Tesco's UK business back on track will require further investment on top of the £1bn spent to date.

Overseas operations

One of the spurs for Tesco's high-flying share price was the announcement last December of a strategic review of the company's loss-making US Fresh & Easy business.

At the time, Tesco claimed it had received 'a number of approaches' from parties interested in acquiring all or part of the business, or in partnering Tesco in developing the operation. Mr Clarke promised to report on progress in the upcoming results.

The Telegraph has recently claimed that Aldi is one of the potential buyers, but that the most likely outcome is Tesco being forced to close Fresh & Easy and then sell the assets piecemeal. According to the Telegraph, Tesco faces a writedown of up to £1bn to quit the US and will book a substantial impairment in next week's results.

While Fresh & Easy could dominate the news headlines, shareholders should keep an eye on the performance of Tesco's growth-engine international operations in Central Europe and Asia. The former has seen weakening consumer spending over the past year.

Dividend

The analyst consensus for Tesco's dividend is a 0.5% decrease -- ranging from a high forecast of +1.6% to a low of -7.2%. I believe the most likely result will be a dividend maintained at last year's level of 14.76p. As the interim dividend was held at 4.63p, look out for final of 10.13p

Results checkout

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