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Your Money > Investing Comment Articles > Not just the...
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By Richard J Hunter, Hargreaves Lansdown
Last week's trading statement from Tesco sent a further shiver down the spines of its rivals. Continuing growth in like-for-like sales, strong performances from its specialist ranges and another stellar contribution from its internet business have all combined yet again to increase its market share. Its non-food lines are also growing apace and the share price has responded accordingly. There are two major strands to the Tesco strategy which its competitors cannot currently find an answer to - firstly its onslaught into the non-food market and secondly its diversification overseas. 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. Even within the traditional food retailing part of the business, like-for-like UK sales were ahead 6% on the previous year, with its organic foods up 40% and its "Finest" range improving by 55%. Indeed, it is estimated that Tesco now has a 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 was a further sign of success in the statement, with international sales up 16%. Some 60% of Tesco's floor space is now based outside of the UK. The share price has at last begun to mirror the performance it has been giving. Shares are up 21% over the last six months and 32% over the last year. Compare this, however, to the hikes in the share prices of Sainsbury and William Morrison - Sainsbury has seen a 36% rise over the last year and William Morrison 44%. The generally accepted reason for this has been that the market has been more interested in recovery stories, whereas Tesco has been seen as something of a defensive stock which has lacked a catalyst to really getting it firing on all cylinders. The general consensus, however, has turned more in favour of Tesco as a growth stock, and the broad market view is that the shares are worth picking up, indeed as a core holding in the sector, with William Morrison being a hold and Sainsbury a sell. It is also worth noting, of course, that while both Sainsbury and Morrisons find themselves in a healthier position than they have been for some time, Tesco has not suffered from such problems and, as such, has been able to put even more light between itself and its nearest rivals. Its foray into the online market also, with Tesco Direct, should soon result in annual sales topping £1 billion. Its customers are already becoming more comfortable with its offerings and during this period alone sales topped £150 million, an increase of over 30%. The Tesco juggernaut is showing no signs of slowing and, with its economies of scale, purchasing power and experienced management, it is moving into non-traditional areas where even the specialists in that field are becoming unnerved. The days of grocery only shopping seem a distant memory and, for the moment, Tesco is leading the way into a whole new world. Whether this Midas touch can be replicated in the US remains to be seen, but meanwhile for most investors, Tesco remains the darling of the sector. Useful links: |
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