Tesco joined the portfolio in January 2012 following a disappointing Christmas trading update which saw 20% knocked off the share price - I was in good company as Warren Buffett was also topping up his holding for Berkshire Hathaway, although my purchase was a little more modest than the £480m spent by Buffett - on the other hand, Neil Woodford was disposing of his holdings at Invesco Perpetual Income and Edinburgh investment trust.
So, 15 months down the line and the share price has more or less recovered and is up around 25% from a low point of 300p.
The past year has been spent trying to get the UK operation back on track as it accounts for over two thirds of Tesco group revenues, and in particular, food sales which account for around 90% of the UK total.
The company have just issued their full year results - here’s a link via Investegate.
The board confirm their intention to exit their US operation, Fresh & Easy and this has wiped £1.2bn from profits. A further £804m has been written off against this years profit in relation to 100 UK property sites which are deemed no longer viable. As a result, profits are reduced from £4bn last year to just under £2bn - the forecast for the coming year is £3.5bn.
On the positive side, the final dividend has been maintained at 10.13p and provides a yield of around 3.9% at the current price of 375p. Online sales increased 13% to over £3bn for the first time and they are making progress in turning around the UK operation.
Overseas, profits have been affected by the introduction of restricted opening hours in South Korea whilst in Europe, the austerity measures and economic conditions have contributed to a poorer return than expected. In Asia sales increased 6% but profits declined by 10% - in Europe, sales increased 2% but profits were down by 33%.
It looks like new CEO, Phil Clarke has put in place a decent strategy to turn around Tesco's fortunes but I suspect its going to take some time before shareholders see any significant benefits. I am happy to continue to hold but would probably not be adding until the picture becomes a little clearer.
In the words of Warren Buffett: “Value investors are not concerned with getting rich tomorrow. People who want to get rich quickly will not get rich at all. There is nothing wrong with getting rich slowly.”