Business Briefing: Should Tesco be after a slice of American pie?
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.What is everyone arguing about? The City is in two minds about Tesco's international operations: one view is that the company's expansion into continental Europe and Asia is an expensive distraction from its core business in the UK. But there is also a growing view that its overseas stores are rapidly becoming the brightest jewels in the crown of Britain's biggest retailer.
Lehman Brothers, for example, recently paid a visit to Tesco's operations in South Korea, Thailand and China. And Lehman analysts claim that the international business is currently undervalued. Today, it represents only 27 per cent of group sales and 23 per cent of profit. By 2012, Lehman believes that Tesco's overseas operations will represent 34 per cent of sales and 31 per cent of profits, even before new development opportunities in markets such as India and Russia are taken into account.
W hat does the future hold?
The company also has ambitions in North America. According to a recent report from Merrill Lynch, shares in leading US food retailer Safeway (no relation) could fall as Tesco prepares to take a chunk out of that same market. Credit Suisse recently estimated that Tesco, might capture $8.2bn (£4bn) in US sales by 2011.
In November, Tesco will make its entry into the $60bn grocery market in California, where Safeway makes most of its sales.
"Tesco will probably prove a formidable competitor to the US supermarkets," said Patricia Baker, an analyst at Merrill Lynch.
The UK retailer has also received a vote of confidence from the super-rich US investment gurur Warren Buffett, who is believed to have acquired a 2.9 per cent stake in Tesco since February 2006, when it first announced plans to enter the American market.
What will the figures show?
When the company reports its interim results on Tuesday, JP Morgan expects UK like-for-like sales, excluding petrol, to have increased by 2.2 per cent in the second quarter following a 4.7 per cent rise in the previous quarter, the slippage in growth caused by a general market slowdown. Group trading profit is forecast to have increased 10 per cent to £1.25bn, with underlying profit before tax set to rise 10.4 per cent to £1.19bn.
JP Morgan said it would also be looking for an update on property disposals, the American ambitions and views on a Competition Commission investigation, with Tesco now controlling around 30 per cent of the UK's grocery market. The Office of Fair Trading has also invited rival supermarkets to comment on Tesco's planned acquisition of stores in the north of England.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments