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Highlights
- Tesco has demonstrated tremendous growth and has also raised its profit guidance recently.
- Counters and Jack’s discount shops are being shut down by Tesco owing to low demand among customers.
UK-based global retailer of groceries and general merchandise Tesco plc (LON: TSCO) is currently under the watch of investors as it has demonstrated tremendous growth and has also raised its profit guidance recently. It is one of the biggest supermarkets in the UK.
However, the company is downsizing counters and Jack’s discount shops, which were launched in 2018 to celebrate Tesco's centenary, resulting in hundreds of job losses. Let’s take a brief look at these developments and figure out if investors should include Tesco shares in their portfolio.
Why is Tesco in news?
The UK’s leading food retailer is planning to shut down fish, meat, and deli counters across 317 of its stores and it is also closing its Jack’s discount supermarket arm. As consumer habits are changing, the company is shutting down the counters where demand is low. Tesco didn’t give any figure on the number of affected workers but hundreds of them would potentially lose their jobs. Overall, the combined changes will put 1,600 jobs at risk. With the closing of 13 Jack’s discount stores, 130 jobs would be affected across the company’s sites and head office. The rest of the six outlets would be converted into Tesco stores.
According to Jason Tarry, UK and Republic of Ireland chief executive of Tesco, the Jack’s brand would be sold in continuation across Booker and symbol brands. Tesco’s core business became more competitive, and it pushed up its sales even during the pandemic.
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Tesco’s fundamentals and outlook
The food retailer has performed pretty well during the pandemic, and since March 2020, Tesco’s share prices have gone up by 30%. With a healthy track record and robust earnings data, the company’s EPS has shown a 12.3% average annual rate of growth for the last five years ended 27 February, which is quite attractive for investors. As compared to pre-tax profits of £145 million five years ago, the company reported a pre-tax profit of £825 million in the last fiscal year. Despite huge disruptions due to the pandemic, Tesco continued to be a profitable business, which is why it is worth including in your portfolio.
In its recent trading update released for the 19 weeks ended 8 January 2022, Tesco displayed very strong results yet again. There was a 2.6% year-on-year increase in the retail sales of the group. Its online performance, as well as the performance of its stores, have been consistently improving. The company made way more online sales than the pre-Covid levels.
Additionally, the company also raised its profit guidance in the retail segment from £2.5 billion to £2.6 billion based on the strong results. It has also raised its guidance range for the bank’s operating profit to £160 million-£200 million.
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The market cap of the FTSE100-listed company stood at £22,718.97 million, and it has provided a return of 25.37% to its shareholders in the last one year as of 31 January 2022, while its year-to-date return stood at 3.55%. Tesco PLC’s (LON: TSCO) shares are currently trading at GBX 300.15, up by 1.06 per cent, around 11.30 am, on 1 February 2021.
Bottomline
Despite the turbulence caused by the pandemic, Tesco was resilient and continued to make profits. Even though there is increased competition in the retail sector, which may impact Tesco’s share prices, the company has bright future prospects and therefore, Tesco shares are a good buy now.
