Earnings look ahead – Tesco, WH Smith

A look at two firms reporting trading updates this week.

WH Smith
Source: Bloomberg

Tesco

Expectations are for Tesco to report a growth of around 2% in like-for-like sales for its first quarter, an improvement over the 0.7% of Q4. Rising inflation will help matters by boosting margins. However, fierce competition remains in the sector, especially from the discounters such as Aldi and Lidl. Much of the coverage will probably focus on the pay packet for CEO Dave Lewis, but it is certain that investors will want to see decent progress on boosting sales, along with an update on the restructuring programme.

Tesco shares have fallen steadily over the year so far, although since April they have been able to hold their ground above 175p. However, they still have the descending trendline from December 2016 to break. A drop through 170p would suggest a bigger drop, towards 160p. Meanwhile, a close above the April high of 197p would likely confirm that the decline of the past half year and more is at an end.

Tesco chart

WH Smith

A recent five-year high for WH Smith confirms how well the group has done. Its travel division has driven much of the improvement, but a deal to run Post Offices in its shops has also resulted in higher customer numbers and improved sales in its High Street business, which had lagged behind over the past few years. Foreign revenues are also expanding thanks to a growing network of stores outside the UK.

We have seen the shares drift towards £17, putting the post-December rising trend under some strain. However, for now the downside appears to be limited, and a revival following this week’s update could see them challenge £18 and push on towards £19.

WH Smith chart

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