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Tesco share price: 5 things to watch out for in its full-year results

The British supermarket chain has boosted its sales growth in recent months, which has been reflected in its share price with the stock making gains from 2018 lows.

Tesco will announce its full-year 2019 results on April 10, with investors expecting a strong end to financial year that has seen the supermarket chain boost its sales and its share price recover from 2018 lows.

Over the last 12 months of trading, the company has become much leaner after years of international expansion left it overstretched, leading to its share price falling by more than 50%. However, a lot has changed since then and Tesco is looking to reveal the extent of its progress in its annual results on Wednesday next week.

Here are 5 things to look out for ahead of Tesco's full-year results on April 10:

Tesco earnings growth

Tesco is expected to report earnings per share (EPS) of 14.1p in its upcoming annual results, up 18.6% compared to last year. Meanwhile, net income is forecast to come in 56.2% higher at £1.34 billion and revenues are expected to rise by as much as 11.6% to £64.18 billion.

Tesco’s EPS has grown by around 20% over the last few years, with the company unlikely to be able to maintain that pace moving forward. However, after the supermarket recording its highest sales figures over the FY 2018 Christmas period since 2009, the business has weathered what has been a challenging few years.

Margins recover after successful cost-cutting measures

Tesco has made a strong push to improve margins, with the supermarket setting a target of 3.5% -4% by 2020. Investors will eager to see if the company remains on track to reach its goal, with the business expecting to see margins rise to 3.2%, a sign it is on pace.

Its margins recovery has been relatively successful, driven by a cost-cutting measures over the last few years that have helped make the business leaner and helped strengthen its position in the UK market.

Synergies realised from the Booker merger

Tesco completed its £4 billion takeover of Booker, the UK’s largest wholesaler, back in March 2018, with synergies from the deal now being delivered.

‘We think Booker can deliver multi-year profitable growth,’ UBS analyst Daniel Ekstein told Insider. ‘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. Tesco's expertise in fresh and private label credentials, plus its delivery fleet, transforms Booker's capability to deliver meal solutions,’ he added.

Competition heats up

Tesco remains the UK’s largest supermarket, but faces stiff competition from Asda, which overtook Sainsbury’s, according to Kantar data.

The trend of more affluent households visiting Asda is one that Tesco will need to keep an eye on, since it needs to retain its competitive price offering in order to avoid losing ground to Asda, let alone the German discounters.

Aldi and Lidl once again saw healthy growth in the year to 24 March, with 13 million households visiting Aldi at least once a week.

There seems to be no stopping the German discounters, which will mean continual evolution for Tesco and indeed the rest of the big four as well.

Strong future ahead for Tesco

Tesco has worked hard to improve its business after its share price fell more than 50% several years ago due to a combination of market overreach and an aggressive international expansion push.

In the years that followed, the company has taken steps to improve its earnings growth and trimmed the fat to make it a much leaner business capable of keeping its many rivals at bay. However, there is still a lot more work to be done and investors are interested to see how Tesco plans to navigate the many challenges it faces in the years ahead.

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. See full non-independent research disclaimer and quarterly summary.

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