Tesco is expected to post flat or only slightly improved UK profit at its interim results on Tuesday – but double-digit growth for its global business. The squeeze on UK margins by cost inflation from rising energy and commodity prices had taken its toll, said analysts.

“We are looking at a UK profit that is flat year-on-year, which, given the cost inflation that has been all over the business in the first half, should be a strong underlying performance,” said Justin Scarborough, analyst at ABN Amro.

On a global level, performance was expected to be strong, however. “Overall, group sales are looking at an increase of about 14% and we are looking for an increase of trading profit of 11%,” he said. “There is solid growth in the UK and very strong growth in Europe and Asia, benefiting from sterling weakness in the first half translating into low double-digit growth at the profit-before-tax and earnings-per-share level.”

The group results would give “an impression of Tesco managing the business well in difficult market conditions”, said James Collins and Ingrid Azoulay from Deutsche Bank, predicting a “small improvement” in UK margins.

The international business was strong, and the economic downturn did not yet appear to have spread to Tesco Asia, they added. Collins and Azoulay also expected a second quarter 4% like-for-like sales increase, versus quarter one’s 3.5%.

Topics