The middle of the week will bring results from two market heavyweights, Tesco PLC (LON:TSCO) and online clothing group ASOS PLC (LON:ASC), both of which are grappling with pressures caused by the coronavirus pandemic alongside the rest of the economy.
Grocer Tesco has been one of the few companies seeing improvement amid the coronavirus crisis, as consumers have been stocking up their cupboards and given up on dinners out.
Analysts at AJ Bell said that the panic buying gave Tesco some respite from the war with Aldi and Lidl, while its share price has “only” dropped 16% in the past month, against the wider FTSE 100 index tanking 28%.
Analysts also pointed out that the acquisition of wholesaler Booker in 2017 is helping sales and earnings momentum at the group.
Investors will want to see whether the firm is on track to meet the goals of generating synergies of £140mln by January 2020 and £210mln by next year.
What’s more, its Thai and Malaysian operations are going to be sold for £8bn, helping to erase the pension deficit and fund a £5bn special dividend – amounting to 51p per share.
In the results, the market will be interested in like-for-like sales growth, which have been pressured by discounters.
However, pre-tax profit is expected to rise to £1.9bn against last year’s £1.5bn, while dividend should come in at 8.27p per share up from 5.77p a year ago.
When it comes to forecasts, consensus full-year pre-tax profit its now £2.3bn for a 10% increase in the ordinary dividend to 9.13p per share.
ASOS faces pressure from workers as interims arrive
Online clothing giant ASOS PLC (LON:ASC) has come under pressure in recent weeks after the GMB workers union accused the firm of unsafe practices in its warehouses by not enforcing social distancing rules.
While the company is due to deliver its interims on Wednesday, investors will be more worried about whether the pressure will cause the company to temporarily shut down its online store following a similar move from Next after it too got into a dispute with staff.
Even if ASOS does not follow suit, it may begin to show signs of demand for its clothes slowing as quarantined customer forgo new clothes and instead reign in spending just for the essentials.
There could also be issues with the firm’s supply chains as the outbreak disrupts shipping lanes and air freight.
Without any knowledge of how long the disruption will last, the focus is likely to be on the core business, particularly the company’s profit margins which have been thin of late and are vulnerable to sales declines.
Attention will also be drawn to any cost saving measures the company has put in place to combat the effects of the pandemic, as well as any improvements in the company’s cash flow.
However, ASOS will be one of few firms that will not be cancelling its dividend, given that it does not pay one in the first place
Analysts at UBS are expecting 18% growth in retail sales alongside a 95 basis point decline in gross margins, giving it a pre-tax profit of £14.2mln.
While they do not expect the pandemic to affect the figures, UBS said attention will focus on the impact of coronavirus on third quarter sales so far as well as any contingency plans and cash conservation measures.
Significant announcements expected for Wednesday 8 April:
Trading announcements: Hyve Group PLC (LON:HYVE)
Interims: ASOS PLC (LON:ASC)
Economic data: US Fed minutes