Supermarket giant Tesco is expected to announce a bumper profits haul - we explain why

Tesco is set to announce a bumper profits haul next week, while the supermarket’s staff brace for thousands of job cuts.

Tesco's update will be studied by City analysts.  Photo : Tim Ireland/PA Wire
Tesco's update will be studied by City analysts. Photo : Tim Ireland/PA Wire

City analysts forecast the grocery giant will post a 22 per cent surge in bottom line full-year pre-tax profits to £1.6bn when it reports figures on Wednesday, with sales tipped to jump 12 per cent to £64.5bn.

Fourth quarter like-for-like sales are also expected to rise by up to 2.2 per cent in the UK, the 13th consecutive period of positive figures.

Strong annual figures follow a stellar December when Tesco emerged as a festive winner, unveiling its best set of Christmas trading figures in nearly a decade.

Tesco said that its ‘Festive 5’ Christmas vegetable offering proved particularly popular with customers, selling 19.7 million packs over the three weeks to Christmas.

Promotions on lamb and beef joints also helped to drive sales, the company said in January.

Nick Coulter, an analyst at Citi, said: “While Tesco UK’s... Christmas and January performance benefited from successful seasonal and centenary promotional programmes, survey data points to another positive volume out-turn for February as Tesco continues to drive value into its grocery offer.”

However, January also saw Tesco announce that up to 9,000 jobs are at risk across its head office and stores as part of a major cost-cutting drive.

Sweeping changes across the business will include a reduction in deli counters, with 90 stores set to lose the service altogether.

In addition to those directly employed by Tesco, the changes will also impact third-party caterers as the company replaces the hot food service in its staff rooms with self-service kitchens.

Consultation with staff is ongoing.

The results will come at a difficult time for the retail sector as consumer confidence takes a knock from Brexit worries.

In addition, supermarkets are battling rising costs and fierce competition in the sector as Lidl and Aldi continue their relentless march.

Sainsbury’s and Asda have also agreed to merge, but are waiting on the competition watchdog’s approval.

As part of efforts to position Tesco to meet the challenges of a rapidly changing market, chief executive Dave Lewis forked out £3.7bn to acquire cash-and-carry business Booker and launched Jack’s, a discount chain that will supposedly rival the German discounters.

Experts believe the deal will continue to help drive profits.

Daniel Ekstein, analyst at UBS, said: “We think Booker can deliver multi-year profitable growth. The deal plays to Tesco’s strengths, addresses Booker’s challenges and the customer wins.

“Booker’s terms of trade improve as prices are aligned with market leader Tesco, allowing it to sell more competitively.”

He added: “Tesco’s expertise in fresh and private label credentials, plus its delivery fleet, transforms Booker’s capability to deliver meal solutions.”