Asia and Fresh & Easy give Tesco a little help

Pre-tax profit at the UK’s biggest retailer rose 12.5% to just short of £1.6bn in the 26 weeks to the end of August, with a strong recovery in Asia making up for a sluggish UK market. The company’s shares rose on the announcement that its loss-making US business Fresh & Easy is expected to make a profit in the 2012/13 financial year.

Shore Capital analyst Clive Black, who rates the shares a buy, called the statement on Fresh & Easy a “big positive surprise”. Black said the date that profitability was going to be achieved was three years ahead of previous expectations, which could “significantly swing sentiment for the group.”

Grocery rival Sainsbury’s followed with a trading update on Wednesday, which showed it continues to outperform the market. Second-quarter like-for-likes (excluding fuel but including VAT) were up 2.9%, with total sales up 5.2%.

Broker Jefferies described the update as “very solid” but only rates the shares a hold, pointing out that “strengthening food inflation and softer comps have had a material impact,” and that the shares have enjoyed a strong run and trade at a premium to those of its grocery rivals.

BRC inflation figures showed food prices were up 4% year on year in September, which Black welcomed, saying “price rises remain a source of positive sentiment and support” for the quoted grocers. Annual non-food inflation increased for the first time in five months according to the survey, which Singer Capital Markets analyst Matthew McEachran warned “is going to exert new pressures on sales and gross margins in discretionary areas of spending in particular”.

Thorntons reported first-quarter trading, with sales up 7.4% to just over £50m but own-store like-for-likes continuing to slide, down 4.1%. Franchise sales were down 4.8% but the company said this was a function of the timing of Christmas deliveries. There was no news on the appointment of a new chief executive to replace Mike Davies.

Sell, advised Execution Noble, saying “the high seasonal and operational gearing lead to a low level of visibility on earnings short term. And longer term, we await to hear the strategy for own stores from a new chief executive”.

Both Kesa and Debenhams appointed new non-executive directors. Outgoing Whitbread chief executive Alan Parker joined the board of the Anglo-French electricals giant, while former Gallaher finance director Mark Rolfe joined the department store chain.

A raft of retailers were preparing to report trading updates as Retail Week went to press including Marks & Spencer, Halfords and Ted Baker. Full details at Retail-week.com.