The Week Ahead: Tesco sales to fall 3 per cent below industry norm

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The supermarket group Tesco is pegged to unveil a slowdown in UK like-for-like sales growth when it publishes a third-quarter update tomorrow. The company's non-food exposure and the introduction of more than 350 discount brands in September is expected to depress growth to bet-ween 1 and 2 per cent excluding fuel, compared with 4.1 per cent in the same period last year.

UBS said that although profitability at the UK operations should be supported by management's proactive stance on cost savings, the slowdown will put the company's sales performance some 3 per cent or so below the industry average, "marking the first period for some time that the business has tracked so far below its peers".

Merrill Lynch expects the discount brands initiative to pay off in the long term. "Having found itself in the trading doldrums, the introduction of Tesco's discount brands has effectively replicated an Aldi shop but with all the benefits of shopping at Tesco," Merrill said. "Whilst their introduction may drag [on performance in the] near term and requires focused marketing, for the growing breed of price-sensitive consumers, Tesco has given itself the tools to fight the discounters."

Société Générale says that, coupled with the impact of falling commodity prices, the discount range could, "in extremis, even lead to deflation at Tesco in 2009".

Today: KBC Peel Hunt forecasts £14.6m in group operating profits when the IT group Anite posts its interim results today. "We known from the recent trading statement that the operating performance of the wireless division was encouraging," the broker said. "Margins have improved substantially, largely driven by declining development expenditure relating to the change of hardware platform and last year's collaborative agreement with Agilent."

Results/updates: Aberdeen Asset Management and Anite.

Tomorrow: Pub group Greene King's outlook will be in focus when it posts its interim results. In a recent preview note, Evolution Securities said: "We think the crunch period for Greene King (and other licensed retailers) will be in the new year when a consumer strike is distinct possibility. In the meantime, the picture presented by the interim results should be deceptively benign due to easy comparatives from last year's rain-wrecked summer and as the smoking ban is lapped."

Evolution added that while the stock is trading at levels not seen since the turn of the century, the rating is unlikely to change as the market remains wary of "companies exposed to the unholy trinity of consumer, debt and property".

The computer games retailer Game is due to publish a pre-close update and given the ensuing consumer slowdown, Deutsche Bank anticipates news of -2 per cent like-for-like sales growth.

Results/updates: Thomas Cook, Game, Greene King and Tesco.

wednesday: Stagecoach is due to publish first-half results. UBS anticipates no surprises and expects investors to focus on the outlook for the UK rail business. "Stagecoach reported that revenue at its South West Trains franchise slowed to 7 per cent in the second quarter. It will be interesting to see if there is any comment on more recent trends," the broker said.

Results/updates: Sage, Ultra Electronics, Shaftesbury, DS Smith, Dawson Holdings and Stagecoach. Other: British Airways traffic statistics.

THURSDAY: Results/updates: WM Morrison.

FRIDAY: As with Greene King, investors will focus on the outlook when Marston's publishes its preliminary results. Evolution reckons things will get worse, prompting the possibility of a dividend cut as the brewer shores up its resources to weather the storm.

"Marston's will just about meet expectations this year due to [a] slightly lower tax charge, but trading is deteriorating," the broker said. "January-spring 2009 could be very tricky for the licensed trade and a further deterioration in trading would require a substantial dividend cut to preserve cash."

Evolution added: "[The] valuation is testing a ten-year low but, if you're in the stock for the dividend, think again."

Results/updates: Berkeley, SThree and Marston's.

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