Tesco Share Prices Going South

A_Flock_Of_Sheep

Tesco shares down, down, down due to profit slump and pulling out from the USA.

Opinions on dipping in on this would be appreciated? :T:T:beer:

doughnutmachine

british retailers always seem to struggle in america, i think pulling out is a good thing.

buy.

gadgetmind

The only UK retailers I hold are Sainsburys and N Brown. The latter is up over 70% since purchase in (from memory) May 2012, which is pretty good given that they were a dividend play!

IronWolf

I've been invested in Tesco for a while now, but wasn't too happy about their last circular. They're reducing their store expansion which was a real growth driver. Not only that but they'll lose the profits from the property development side of it. They made up about 10% of pre-tax profits historically.

I've got a sell order to cut my holding by about 75%, still think theyre a decent long term buy and great defensive for a portfolio but dont expect any steller performance. There are better bargains out there.

The USA thing is a red herring really, thats not the big news here. It was doomed from the start but at least they're putting an end to the lunacy.

Glen_Clark

Tesco's problem is that, as the gap between rich and poor widens, their poor customers are moving to Aldi, and their rich customers are moving to Waitrose.
But they seem to be doing all the right things and I think they look fair value at the moment so am holding mine.

redbuzzard

Still holding about £6,300 worth, bought at £3.10 after the profit warning last year.

The yield is decent, this is still a mighty business. I didn't expect the share price to react quite as much as it did, the results weren't really any worse than expected and while there are various write downs to report they are finally killing off Fresh n Easy.

I might sell on a good day, but I'm not unduly worried. Brokers are still generally positive, for what that's worth.

It's a fair point that Tesco is vulnerable both at the premium and value ends of the market. All the supermarkets have the shared problems of saturation and margin pressure from online - it costs £15 or more to pick and deliver an online order, more than can be charged, so the tendency for customers to shop online just reduces their margins.

I agree that Tesco is unlikely to take off like a rocket. Time will tell whether it emerges as a winner again, but I wouldn't underestimate it - they will all have to move out of their comfort zones and find an alternative to adding space to grow sales and profits. Their ability to control and reduce costs may be the crucial factor.

Edit - @ Flock of Sheep. Pulling out of the US is a positive, and probably helped the share price. It was also not unexpected.

grizzly1911

redbuzzard wrote: »

It's a fair point that Tesco is vulnerable both at the premium and value ends of the market. All the supermarkets have the shared problems of saturation and margin pressure from online - it costs £15 or more to pick and deliver an online order, more than can be charged, so the tendency for customers to shop online just reduces their margins.

I appreciate that online carries an overhead, not sure how accurate your £15 figure per drop is but looks scary. I guess that is why Morrisons have resisted it for so long.

Surely this cost is simply covered by every body paying that little bit more across the store. Unless that cost is passed on at some point they will price themselves out of the market against competitors that don't offer the service.

In the same way that 24hour opening just increases the overhead for all stores competing as there is only so much spend to go round.

I think Tesco has lost it's way and is simply trying to do far too much. They aspire to be something they are not.

atush

I too bought last year after the profit warning and am sitting on a profit (all be it smaller than before lol).

I look at Tesco thru my shoppers eyes via my local store. They aren't getting things quite right (expanded my store and increased lines yet during the process they stopped selling 4/5 lines I bought every week of which they have restored 1) but they are trying.

They also put up higher shelves, that means I am constantly asked by little old ladies to get stuff from high shelf) and was asked by an older guy to get him wine on the lowest rack as I was down there on my hands and knees lol). Must be selling less to the over 60's

They have installed those self serve scanners which helped with the horrendous lines, but today for the first time I had a wait for check out, while there were very short lines on the checkouts, so I may go back to the old way (have been selected for 'Random' check 50% of the time !).

And we can now get free delivery instore for Tesco Direct.

So, I am holding but reviewing on occasion.

akamustang

If online orders are so costly why this week have I received four £12 discount offers from Sainsbury's trying to get me into online shopping?

On top of that there is free delivery on Tuesday, Wednesday and Thursday.

redbuzzard

@Grizzly1911

Supermarket competition and margins are an odd phenomenon. Most people would agree that supermarkets compete intensely, yet the net margins are very good at up 5%-6% of sales.

On individual key lines, there's not much incentive for the supermarket to reduce a price because the competitors will immediately match it. So the competitive frontier tends to be around location, parking, offers (often funded by suppliers), loyalty rewards, other facilities (Tesco actually thinks it can make stores a destination by co-locating with its Harris & Hoole coffee shops and Giraffe restaurants).

The supermarkets may struggle to maintain margins with online. Online makes price comparison and cherry picking offers easier for the consumer, and you have the odd situation that in order to maintain market share they have to go after online share (hence the vouchers and free delivery akamustang, trust me they won't give you £12 off every shop), but the more successful they are the lower the average margin.

I got the estimate on cost per order from somebody at Ocado, which is online only and yet to turn a profit AFAIK. But they reckon it's the only way to do it, because they use warehouses rather than expensive retail space and picking is much more efficient (have you seen the bods traipsing round the retail shops picking the online orders?). As online grows, Tesco et al will probably have to invest in dedicated online operations rather than bolting it on to the retail store.

redbuzzard

akamustang wrote: »

If online orders are so costly why this week have I received four £12 discount offers from Sainsbury's trying to get me into online shopping?

On top of that there is free delivery on Tuesday, Wednesday and Thursday.

To expand, they can't afford to lose share if you go online elsewhere. Also, online shoppers tend to be loyal - we now use Ocado for nearly all our supermarket shopping, when we did it ourselves we would ring the changes.

They are between a rock and a hard place - they have to compete or die, even though the margins are lower.

They might save a bit on the checkout, but they have to send a bod round the shop to fill your bags, and then load it on to a van to deliver to you - it's not going to be a lot less than £15 is it? But they can only charge you a fiver or so.

The free drop times are because they are underutilised, and it's better to move you into those slots than increase fixed costs by buying more vans to deliver to you at the weekends.