Shares in Tesco are up nearly 1% today, close to their highest in almost six months. Investors are hopeful it will reinstate dividends when it announces interim results on Wednesday, although any shareholder returns are likely to be limited. Nevertheless dividends would be a clear sign to the market that the Dave Lewis turnaround is firmly entrenched.

Meanwhile with the Booker ‘merger', Amazon’s encroachment on the grocery market, an embarrassing fraud trial and the ongoing hit from discounters, there should be plenty for investors to chew over.

An update on the Booker deal would be welcome but this is really a distraction from the real business of turning Tesco around. The lukewarm reaction to the deal – shares are flat since it was mooted – reflects the fact that this is a diversion from the main task at hand. If the CMA blocks it it’s hard to see many investors shedding a tear.

In June’s Q1 trading update the company recorded its sixth like-for-like quarterly sales increase on the bounce and its best q-o-q performance for years.  Like-for-like sales growth of 2.3% was marginally ahead of expectations. Overall group LFL sales growth of 1% reflected international sales that were 3% lower, dragged down by the poor performance in Asia, particularly Thailand.

A focus on keeping prices down despite rising inflation (think of the Unilever spat) is paying off, particularly in fresh food where volume growth stood at 1.6%. The market is moving from deflationary to inflationary, but the question is always profitability and margins – and whether the momentum in evidence in Q1 has been carried through into Q2. Retail sales figures over the summer look robust, which may be a good indicator for Tesco.

Kantar data signals more robust growth. In the 12 weeks to August 13th, which covers the bulk of Q2, overall sales at Tesco grew by 3%, which is positive but below market growth of 4%. Indeed market share fell 0.3 percentage points to 27.8% as discounters continue to gain ground - Lidl increased share to 5.2% –to become Britain’s seventh largest supermarket.

Figures for the 12 weeks to 10th September were similarly strong, though again below market. Tesco sales grew 2.7% against overall market growth of 3.6%. Sales are expected to rise c3% to c£28bn.

On profits, deflationary pressures mean expectations are firmly anchored around the £500m mark, a little below last year’s figures as input price inflation thins margins.

On margins, investors will need to see whether the company is on track to deliver 3.5-4% group operating margin by 2019/20 that it is targeting.

This stood at 2.18% last year but any improvements here may be small for now and Tesco has anyway stressed that margin improvement will likely be more weighted towards the end of the plan. Following the UK’s vote to leave the European Union and the subsequent devaluation in the pound exchange rate, which has increased supplier costs, investors might be left waiting unless Tesco can make additional headway on plans to strip £1.5bn from operating costs over this period.

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