3 Things to Loathe About Tesco

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to loathe about Britain's biggest supermarket, Tesco  (LSE: TSCO  ) (NASDAQOTH: TSCDY  ) .

I'll also be asking whether these negative factors make this FTSE 100 retail giant a poor investment today.

Not global
Tesco is often referred to as a "global retail giant." It's not. Its international reach amounts to a little cluster of countries in Eastern Europe and another small cluster in Asia. In all, Tesco operates in just 12 territories.

The company has tried and failed to establish itself in three of the world's five richest countries -- The U.S., Japan, and France -- and has been scaling back growth and rethinking its strategy in China.

If you want global, you need to look at some other iconic British retailers: Marks & Spencer operates in more than 40 territories, Burberry in more than 50, and Mothercare in more than 60.

Poor capital allocation
Shareholders have watched Tesco burn a sizable bonfire of cash over the past few years.

The U.S. misadventure, the expansion into general merchandise, a land bank that has become more of a liability than an asset, and forays into the second-hand car market and gold dealing can be seen not only as symptomatic of ill-disciplined and wasteful capital allocation but also as distractions that led management to take its eye off the core U.K. grocery business.

Tougher for Tesco in the U.K.
Arguably, Tesco's had it easy in the U.K. for the past decade or two. The group's rivals provided pretty poor competition, for one reason or another, enabling Tesco to successfully pursue a strategy of being all things to all people.

The landscape's certainly changed in recent years. Asda, Sainsburys, and Morrisons have become tougher cookies, while Waitrose and Marks & Spencer have been eating down from the top of the market and discount chains Aldi and Lidl have been taking market share hand over fist from the bottom.

Tesco's years of casual domination and easy property profits are over. The company's going to have to work a lot harder and accept significantly lower margins if its grocery market share isn't to be gradually eroded.

A poor investment?
I've been bearish on Tesco for quite some time now, mainly on the grounds that history suggests it can take many years for a supertanker supermarket to get back on course once it's drifted off.

However, a number of notable investors have given the thumbs-up to Britain's biggest retailer. In particular, legendary U.S. investor Warren Buffett has backed Tesco big-time. The multibillionaire owns 5% of the company's shares.

If you'd like to learn all about Buffett's investment, you may wish to read this exclusive in-depth report. The report is 100% free and can be in your inbox in seconds. Simply click here.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2416018, ~/Articles/ArticleHandler.aspx, 10/22/2016 3:18:46 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 3:59 PM
TSCDY $7.68 Down -0.01 -0.07%
Tesco CAPS Rating: *****