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 is a retail company. The Company is engaged in the business of retailing and retail banking. The Company operates in four segments: UK, Asia, Europe and Tesco Bank. It has retailing and associated activities (retail) operations across the United Kingdom, Asia and Europe. It is engaged in the retail banking and insurance services through Tesco Bank in the United Kingdom (Bank). The Bank offers a range of personal banking products, which include mortgages, credit cards, personal loans and savings. The Company operates approximately 7,817 shops around the world. Its subsidiaries include Tesco Stores Limited, One Stop Stores Limited, Tesco Ireland Limited, Tesco-Global Stores Privately Held Co. Limited, Tesco Polska Sp. z o.o., Tesco Stores CR a.s., Tesco Stores SR a.s., Homeplus Co. Limited and Homeplus Tesco Co. Limited, among others. more »

LSE Price
160.05p
Change
-5.4%
Mkt Cap (£m)
13,779
P/E (fwd)
22.6
Yield (fwd)
1.3

Wm Morrison Supermarkets PLC is a United Kingdom-based supermarket group. The Company is a fresh food manufacturer in the United Kingdom. The Company owns, operates and controls its fresh food supply chain. The Company's Market Street stores include butchers, fishmongers, bakery, cake shops, greengrocers, delis, oven fresh products, Fresh to Go products, flower shops and cafes. The Company also offers clothing for children, baby and adults. The Company offers lifestyle products, such as Let's Grow products, entertainment products, such as games, films and television shows, the Morrisons magazine, dry cleaning services, petrol filling stations, pharmacies, facilities for shoppers with disabilities, photo printing services and recycling services. The Company markets its products under the Morrisons brand. The Company operates around seven regional distribution centers and one national center servicing its supermarkets, and three convenience distribution centers. more »

LSE Price
187.5p
Change
-1.8%
Mkt Cap (£m)
4,458
P/E (fwd)
18.0
Yield (fwd)
2.8

J Sainsbury plc is a United Kingdom-based company, engaged in supermarkets and convenience stores, and an online grocery and general merchandise operation. The Company also has two property joint ventures with Land Securities Group Plc and The British Land Company Plc. Sainsbury’s Bank provides a range of banking and insurance products. As of March 2013, J Sainsbury plc consists of a chain of 592 supermarkets and 611 convenience stores. It provides a selection of movies, music, books, games and other entertainment products through Sainsbury's Entertainment. more »

LSE Price
267.8p
Change
-6.3%
Mkt Cap (£m)
5,500
P/E (fwd)
13.5
Yield (fwd)
3.6
96



  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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