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Your Money > Investing Comment Articles > Terry and Boon
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By Richard J Hunter, Hargreaves Lansdown
Recent full year figures from Tesco sent a further shiver down the spines of its rivals. There are two major strands to the Tesco strategy which its competitors A run down summary of this performance is a retailer's dream - UK sales up 9%, International sales up 18%, online sales up 29% and Tesco Directory sales up 49%. These figures combined helped to propel full year profits to a figure of £2.55 billion, representing a 13% rise from the previous year - and at a time when the going on the High Street is becomingly increasingly tough for less prepared competitors. Without taking its eyes off the core UK market - where all the key performance indicators continue their inexorable growth - the success of its international division continues apace, with a flagship Chinese store and the US roll-out yet to make their own notable contributions. The recent speculation around Sainsbury has helped for the sector to be rerated, although this has not filtered through fully to Tesco, given its major property portfolio. The portfolio reportedly has a book value of some £17 billion, although the company itself estimates that the market value of that property could be anything up to 65% higher than that figure. The earlier sale and leaseback deal with British Land has already unlocked some value and the doubling of the share buyback programme to £3 billion will add further support to the shares. It has been rumoured that Tesco is now selling more clothes than Next, and more health and beauty products than that whole market put together. Sales of goods such as barbecues soared over last summer due largely to the World Cup effect and this expansion does not stop there. Indeed, this week's figures showed a 12% rise in UK non-food sales, and the continuation of DVD sales, electricals, home entertainment and so on shows little sign of abating. Even within the traditional food retailing part of the business, it is estimated that Tesco now has some 31% market share, which is almost that of Sainsbury and Asda (owned by Wal Mart of the US), its nearest two rivals, combined. As for its international business, Tesco has a presence in China, Korea and Thailand in Asia, as well as Poland, Hungary and the Czech Republic in Europe, and is currently in the throes of setting up camp in the US. This set up in the US, under a new Tesco brand called "Fresh & Easy", will initially be targeted at Arizona - at present, the scheme seems to have been well thought through and researched, and the company is confident that plans to open the store are firmly on track. There have also been suggestions of a foray into Australia, perhaps via a takeover, which would simply serve to underline Tesco's global ambitions in trying to keep up with the other global behemoths, namely Wal-Mart of the US and Carrefour of France. With its economies of scale, purchasing power and experienced management under the guidance of CEO Terry Leahy, it is moving into non-traditional areas where even the specialists in that field are becoming unnerved. As the Tesco juggernaut continues to fire on all cylinders - and despite a 38% hike in the share price over the last year - the market view towards the shares remains resolutely positive. The days of grocery only shopping seem a distant memory and, for the moment, Tesco is leading the way into a whole new world. Useful links |
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