Why Tesco Is a Share for Me

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LONDON -- Tesco  (LSE: TSCO  ) (NASDAQOTH: TSCDY  ) shareholders have reason to smile, as new evidence indicates that CEO Philip Clarke's plans to rejuvenate the firm are working.

Fresh data from Kantar Worldpanel for the 12 weeks ending Jan. 20 show Tesco has ended its 18-month slide in market share amid fierce competition among the "Big Four" grocers.

Tesco has held its market share of 30.4% year on year and matched market growth of 3.3% for the first time since June 2011, while Sainsbury's and Asda fell just behind (at 3.2% and 2.1% sales growth, respectively).

Meanwhile, Morrisons continued to be the worst performer of the bunch, posting a disappointing decline in sales of 1.7%.

Kantar Worldpanel director Ed Garner said: "These positive results are a sign of stabilization for Tesco as the retailer gets back on track with its customers."

Do these positive short-term results mean Tesco is back on track for the long term? Let's take a look.

What a difference a year makes
This time last year, Tesco reported a 2.3% drop in like-for-like sales in the U.K. This news, coupled with Philip Clarke's admission that the company had missed a step in its home market, sent the shares toppling 16% in one day!

While legendary American investor Warren Buffett saw an opportunity to top up on Tesco shares, taking his stake in the company from 3.2% to just over 5%, our own legend Neil Woodford actually parted ways with his shares.

So who made the right call?
Buffett had reason to smile this year as Tesco's Christmas figures were jollier -- the firm's 1.8% increase in LFL sales was a relief to the market. It was also another indicator that Clarke's U.K. rejuvenation plan was taking hold.

(Woodford was in no way wrong. I'll tell you in a moment how to download our free report and see where he's investing his money today.)

There's still work to be done, though, as Tesco posted weak non-food sales, namely electronics, where online retail (read: Amazon) and reduced discretionary spending have hurt Tesco. Over the Christmas period, non-food sales were better than in the third quarter, as you might expect during a gift-giving time, but they still dragged on performance.

What's next for Tesco?
I like that CEO Philip Clarke is stepping back from the U.K. and has appointed Chris Bush as U.K. managing director. Now that the domestic operations seem to be on the road to recovery (it is still a long road, but I think we're in capable hands with Bush), I expect Clarke's attention will be directed to the struggling European and Chinese operations.

I bought shares myself after Tesco's big drop in early 2012. I'm up about 11% so far, and am happy to keep holding on. Plus, Tesco pays a nice dividend (it's about a 4.5% yield today), and is trading on what you could argue is a modest price-to-earnings ratio of just over 11 times earnings.

I believe the U.K. is still Tesco's most important market, but perhaps the more exciting growth is going to come as Clarke focuses more on the operations in Europe and Asia.

I'd like to think that Buffett agrees with me -- in fact, you can read his rationale in our special FREE investing report "The 1 U.K. Share That Warren Buffett Loves." Click here for your copy.

As for that other top investor, Woodford, he's put his money to work elsewhere. Click here for your free copy of "8 Shares Held by Britain's Super-Investor" today.


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