Today I am outlining why Tesco (LSE: TSCO) could be considered an attractive addition to any stocks portfolio.
Investment in red-hot areas on the up
L
ike the rest of the mid-tier supermarket space, Tesco is facing the double hammer-blow of steady market share concessions to discount and premium chains such as Lidl and Waitrose, as well as the subsequent effect of pricing wars on the top line. Indeed, latest data from the Office of National Statistics showed food spending fall 1.3% year-on-year during July, the first drop for a quarter of a century.
However, the company is pulling out all the stops to arrest this decline, and certainly has the financial might — not to mention multi-decade experience at the top of the British grocery tree — to turn around its ailing fortunes.
The business has announced a variety of initiatives, from rolling out its Hudl tablet PCs — of which it has already sold in excess of half a million — through to slashing delivery fees, in order to boost activity across its already-impressive online operations. It is also looking enhancing its presence in the other high-growth area of convenience shopping, and is on course to open 150 new outlets this year alone, versus 128 in fiscal 2014, as well as completing a spate of store refurbishments.
Although Tesco still has much work to undertake to resuscitate its ailing fortunes in the UK, and earnings pressures are likely to remain in the doldrums in the immediate future, the business undoubtedly has the resources to return to terrific growth over the long term.
Overseas strategy offers promising returns
Tesco has also refined its strategy to crack foreign markets, following the debacle of its failed ventures in the US and Japan in recent years, not to mention the effect of wider macroeconomic pressures on consumer spend.
The firm noted in June’s interims that total international turnover edged 0.5% higher (at constant exchange rates) during March-May, with like-for-like sales in Asia in particular showing much promise. And the supermarket has invested heavily to turbocharge revenues in these regions, including the establishing of joint ventures in China and India in recent months.
And Tesco’s performance abroad will no doubt be boosted by the appointment of Dave Lewis as new chief executive in June. The new man is due to take the helm at the start of October, and Tesco will be hoping that his former position as President of Personal Care at Unilever — which derives the majority of revenues from emerging regions — will prove invaluable in helping the firm crack these new exciting markets.
