Just back from the weekly shop at Tesco. (I'm a modern man, clearly not that modern or I'd been doing it online!) I love the Clapham South store; it is definitely "under-shopped", always has been since it converted from a womens' hospital about 10 years ago, so the aisle's are empty and the checkout free. But I like it, adequate selection of groceries, (except sell buy dates can be a bit of a problem!). I try Waitrose now and again but frankly a rip-off, (and the sell buy dates are even worse, I only want to do this chore once a week!)
So where am I going to with this ramble. Some readers may remember I had a brief flirtation with Sainsbury in January last year but quickly cut my holding for a small loss and warned about the downside; well part of me thinks it's time to get back in; real wages are rising and valuations look more attractive (now dividends have been cut etc.) but I wouldn't:
Growth through store expansion is over.
Growth through margin expansion is over. There are a lot of pressures to come; the living wage, increasing rates and the discounters, (Lidl and Aldi) have not gone away.
I understand Tesco EPS forecasts for January 2016 are as low 4.6p , (shares are on 38x!) but why do people believe February 2017 will see growth given the headwinds on the cost front and from competitors.
Sadly, I think the lovely ladies on the checkout at Clapham South will pay the price. In 3 or 5 years time we will just push our trolley though a "gate" and with "FR" tags on each item will be presented with our bill. The companies are going to have to find cost savings somewhere!
But for now I think the sector is still a "value trap"! Tesco below 100p.
BTW I have no axe to grind; no short position or anything....just random thoughts.
Tesco is my favorite short. Be careful with real wage data, housing and rent costs are not included in CPI, and tend to absorb any increase in wages.
