Tesco may just have a shock in store for shareholders and the rest of the City - and for once, it's a good one. Call it a belated Easter gift.
The struggling supermarket is about to report a surprise turnaround in sales after Dave Lewis's crack of the whip over the past several months. Belt tightening across the board has apparently paid off and last year's billion pound losses may just be a faint memory...
A £541m pre-tax-profit for the year to 26 February compared to last year's £6.38bn loss (the worst in its near-century history, if you needed reminding) is expected on Wednesday, according to Shorecap's Clive Black.
Barclays forecasts a 0.8 per cent rise in fourth quarter like-for-like sales in the UK - that would be its first quarterly rise in more than three years. According to the latest Kantar Worldpanel figures, Easter didn't exactly bring baskets of bunnies for Tesco, however.
Consensus estimates peg revenue for the full year at £55.3bn and operating profit before exceptional items at £932m.
Is there anything left to sell? Its Korean business went for several billion, bolstering the supermarket's cash and helping pay down some of its debt, while data business Dunnhumby was essentially taken off the market due to waning interest. It surprisingly snapped up a remaining stake in the coffee shop Harris and Hoole rather than selling off its interest as expected.
Giraffe, the family-friendly restaurant chain, is the latest for the chop, according to recent reports. An update on the progress of any deal could be on the agenda.
"That relative performance masks a lot of hard work we believe by Messrs Lewis, Davies and Stewart," said Shorecap's Black.
"We sense that heads have well and truly been down focusing upon all of the business’ processes in order to deliver not just a lower cost operation, reflected in the cull of central overheads embracing a move to a new head office, but also a more effective company. The retail manifestation of this hard work has not been enormously evident it has to be said beyond a consistently better executed retail estate.
However, given the shambles that management inherited, such stabilisation is creditable and important in its own right. Additionally though, much work has also gone into the simplification of the range, supply chain and store operations, change that we believe has scope to be the key lever delivering positive operational gearing into Tesco UK in the not so medium-term."
Barclays warned of "cost pressures from the National Living Wage, business rates and rental costs", reminding that "momentum may have returned to the sales line, but headwinds have not disappeared".
"The market’s main focus will be on guidance – capex, cost savings and (especially) profits. We expect capex to remain below depreciation in 2016/17 and for further material cost savings to be targeted. While we do not expect a very specific margin or profit target, we do expect the market to have greater clarity on the near-term profit outlook after the event. We expect profit growth in 2016/17, but we also expect Tesco to emphasise (like last year) that opportunities toinvest in the customer offer will not be passed over to deliver a specific profit number."
"New management team has ticked a number of boxes and made real progress," said Deutsche Bank.
"1) The pension deficit funding agreement and the disposal of South Korea has alleviated concerns on Tesco’s balance sheet. While leverage remains high, liquidity is strong and the debate about a potential rights issue has largely disappeared. 2) The closure of 43 unprofitable stores, and of Cheshunt HQ and relocation of HQ to Welwyn Garden City is one of a number of ways management is creating a “new” Tesco and driving circa £400m of cost savings. 3) Management has changed the way it works with suppliers, from being a buying-led organisation to being more customer focused."