Can Tesco (LSE: TSCO) really be blamed for the slump it has faced? The more I look at it, the more I think not — at least, Tesco is no more at fault than anyone else in the supermarket business.
The thing is, many of us thought that Tesco’s bad Christmas at the end of 2011 was a one-off, and we were in good company as even Warren Buffett thought Tesco was good to buy at the time.
Too late
Then there was Wm Morrison (LSE: MRW), also in a slump. And it was even easier to blame that one on the company itself. Morrisons had been lamentably late getting online shopping off the ground, and by the time it finally got its Ocado-powered offering going, it was years behind the competition.
Then there’s the multiple-format stores thing — the others had cracked the idea that there was plenty of demand for smaller local convenience stores, but for years Morrisons was nowhere to be seen. So that was all Morrisons’ fault, sure.
Now, what calamitous mismanagement has J Sainsbury (LSE: SBRY) been guilty of?
How many awards?
Drinks and Seafood Retailer of the Year, Convenience Retailer of the Year for the fifth consecutive year and Training Initiative of the Year awards at the Retail Industry Awards; Fish Retailer of the Year award by the Marine Stewardship Council; In-store Bakery Retailer of the Year at The Baking Industry Awards; Business Employer of the Year at the City & Guilds Lion Awards; Grocer 33 Award for service and availability nearly one week in every three; the RSPCA’s Most Outstanding Contribution to Farm Animal Welfare award in September 2014; two consecutive Gold Standard Investor in People awards… does anyone see any of those as signs of failure?
Yet still, underlying per-tax profit was down 6.3% to £375m for the first six months of the current year and Sainsbury’s has shelved some of its expansion plans as a result. And its shares are down 36% over the past 12 months, not far behind Tesco’s 46% fall.
Back to Tesco
Against that general sector malaise, I really don’t think Tesco can be singled out, and though there’s a 45% fall in earnings per share (EPS) forecast for this year, the company already has a headstart on its rivals in restructuring itself to fit the new retail environment.
Because that’s what we’re in now. As our economy pulls itself out of crisis, people are not so cavalier with their cash these days — and we’re just not prepared to pay top whack for Tesco Finest brands any more when we can get equally good, if unpronounceable, German brands at Lidl and Aldi at half the price.
Does that mean buy?
Tesco reacted poorly, sure, but it wasn’t the sole architect of its downfall — it got hit first because it’s the biggest, and rather than thinking it was only a Tesco problem, we really should have seen it as a leading indicator for its sector. And at 265p, the shares really might have finally bottomed!