Tesco earnings preview: what to expect from full-year results

We look at what to expect from Tesco’s  annual results and assess how they will affect the Tesco share price.

Tesco earnings – what to expect

Tesco announces results on 8 April, covering its full year. The supermarket is expected to report a healthy increase in profits, rising to £1.85 billion, up from £1.56 billion a year earlier.

March sales figures showed that Tesco witnessed a 5.5% jump in volumes, as consumers stocked up ahead of widespread lockdowns. This was the second best performance, coming in behind Sainsbury’s but ahead of Aldi and Lidl. The problem for supermarkets is that this surge in demand will not last. Shopping patterns will return to normal in due course, perhaps with additional spikes along the way. In addition, the weaker consumer outlook spells more pressure on spending, with supermarkets having to keep a lid on prices as a result.

Consumers are also keen not to hang around too long. They are shopping for essentials and are not staying in stores to shop for ‘unnecessary luxuries’, which at this time might be defined as anything apart from food, cleaning products and toilet paper.

How to trade Tesco earnings

At 17.8 times earnings, Tesco shares are near their one-year high of 19, and above the ten-year median of 16.4. Meanwhile, volatility in its shares has surged, with the 14-day average true range (ATR) hitting a high of 13, compared to readings around five in February, ie 7% of the share price currently versus only 2% back in February.

Tesco share price – technical analysis

Tesco shares have held up relatively well when compared to the broader market, falling by 8.5% versus a 25% fall for the FTSE 100. A long-term look at the chart shows a steady rising trend for Tesco, which the latest sell-off has not interrupted.

Indeed, it is the sixth such dip since the long-term recovery began in late 2015. The price has been capped at 260p since 2018, but this is a good first target in the event of a rebound.

Tesco poised for growth

While the bounce in sales provided by Covid-19 stockpiling will ease, Tesco’s large market share and solid price chart could provide an interesting long-term opportunity.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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