Has Tesco lost it?

Thursday, Nov 05 2009 by
7

 Tesco has been the doyen of the supermarket sector in the UK for the last decade. Other groups have struggled - Sainsbury, for instance, lost market share, while Morrisons had a couple of terrible years after the over-ambitious acquisition of Safeway - but Tesco seems invincible.

Or at least, it did seem invincible. But this year, for the first time, it's seen sales growth falling below the other supermarkets - and has started losing market share. At the same time, other supermarkets seem to have become stronger - Sainsbury has begun to turn itself around, Asda has been a strong competitor under Wal-Mart's ownership, and Waitrose - which you might have thought would be a recession victim with its upper middle class customer base and quality, rather than price, promise - has seen some truly stunning performance after it introduced its own budget range.

Waitrose has also made a land grab for the online market, having gained 20 percent share of online supermarket sales - far ahead of its 4 percent of the total supermarket revenues - with its Ocado operation. Still, online sales only make up 2 percent of the total grocery market at the moment, so that's not likely to worry Tesco management unduly.

September saw Tesco fighting back, with strong sales - up 4.5 percent on a like-for-like basis [1] . According to Nielsen, this boosted Tesco's market share to 28.5% according to Nielsen. Even so, other rivals are growing faster - Asda at 6.6%, Sainsbury at 5.7%, Morrison at 8.4% and Waitrose, almost incredibly, at 11.6% [2]

The interim results disappointed investors, with the weakest first half profit growth in 11 years [3] - a mere 1.5 percent increase in declared pretax profits. (That figure is, true, a little ungenerous, as there were one-off expenses that need to be taken into account - the writedown of goodwill on operations in Japan, together with costs of the Tesco Bank acquisition. Take those costs out, and you'd see a 9 percent increase in profits - not dusty at all.) 

Analysing the first half into its quarters also shows that growth had slowed from 4.3 percent to 3.1 percent in Q2, predominantly the result of weakening food price inflation. That doesn't give a lot of confidence for the rest of the year. But management hasn't lost faith,…

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Tesco PLC (Tesco) is a retail company. The Company is engaged in the business of Retailing and associated activities (Retail) and Retail banking and insurance services. The Company's segments include UK & ROI, which includes the United Kingdom and Republic of Ireland, International, which includes Czech Republic, Hungary, Poland, Slovakia, Malaysia, Thailand and Turkey, and Tesco Bank, which includes retail banking and insurance services through Tesco Bank in the United Kingdom. The Company's businesses include Tesco UK, Tesco in India, Tesco Malaysia, Tesco Lotus, Tesco Czech Republic, Tesco Hungary, Tesco Ireland, Tesco Poland, Tesco Slovakia, Tesco Kipa, Tesco in China, Tesco Bank and dunnhumby. The Company's brands include Finest, Everyday Value, Chokablok and Technika. Finest and Everyday Value are the two food brands in the United Kingdom. more »

LSE Price
177.65p
Change
-0.1%
Mkt Cap (£m)
14,530
P/E (fwd)
21.3
Yield (fwd)
1.2

Wm Morrison Supermarkets PLC is engaged in the operation of retail supermarket stores under the Morrisons brand and associated activities. The Company offers products, such as Free From, World Foods, Food To Go and Nutmeg clothing. It has food manufacturing capabilities in meat, fish, bakery, fruit and veg, deli and flowers. Its Morrisons branded beef, lamb, pork, chicken, milk and eggs are sourced in the United Kingdom. The Company serves customers across the United Kingdom through approximately 500 stores and an online home delivery service. It operates from over 10 manufacturing sites across Britain. The Company operates over seven regional distribution centers and a national center servicing its supermarkets. Its subsidiaries include Bos Brothers Fruit and Vegetables B.V., Erith Pier Company Limited, Firsdell Limited, Kiddicare Properties Limited, MHE JV Co Limited, Neerock Farming Limited, Neerock Limited, Rathbone Kear Limited and Wm Morrison Produce Limited. more »

LSE Price
220p
Change
0.6%
Mkt Cap (£m)
5,105
P/E (fwd)
19.3
Yield (fwd)
2.6

J Sainsbury plc is engaged in grocery-related retailing and retail banking. The Company's segments include Retailing; Financial services, and Property investments. The Retailing segment is engaged in the operation of supermarkets and convenience. The Financial services segment includes the operations of Sainsbury's Bank plc (Sainsbury's Bank). The Property investments segment includes the Company's joint ventures with the British Land Company PLC and Land Securities Group PLC. The Company has approximately 2,000 food suppliers and over 1,000 non-food suppliers. The Company offers over 15,000 own-brand products and has approximately 770 convenience stores. The Company offers groceries under various categories, such as fruit and veg, meat and fish, dairy, chilled, bakery, frozen, food cupboard, drinks, health and beauty, baby, household, pet and home. Sainsbury's Bank provides a range of products, including insurances, credit cards, savings and loans. more »

LSE Price
241p
Change
-3.9%
Mkt Cap (£m)
5,484
P/E (fwd)
12.0
Yield (fwd)
4.3
87



  Is Tesco fundamentally strong or weak? Find out More »


1 Comment on this Article show/hide all

emptyend 5th Nov '09 1 of 1
2

I'm quite a fan of Tesco, even now. They still do an awful lot of things right. Sainsburys, by contrast, still struggle with the basics of price competitiveness, queuing at the tills etc, even if they have made some strides in other areas over the last year or so.

I suspect that one or more of the major retailers may get involved more in financial services (the Chancellor's new banks) - and I'd want to see how that shaped up before owning shares in any of them.

FWIW

ee

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About ragtrader

Ragtrader

I'm not just a rag trade investor - basically any company that sells to the consumer is one I'm going to look at. Stocks I've enjoyed holding include Majestic Wine, Sci Entertainment (before it bought Tomb Raider!), Greene King and GUS - quite a range, though alcohol seems to be something of a strong suit! When I'm not investing, or writing about it, I am a coloratura soprano, but my operatic career has so far been limited to my own bathroom. more »



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