continuing discussion from Volume 1
Tesco shares are still around the £2.40 mark. In fact today (after announcing a £6.4bn loss) they are currently up over 2% on yesterday's close. Why didn't they drop like a stone on that news?
Last edited by: VxFan on Thu 23 Apr 15 at 10:19
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My guess is they have written off the drop in value of their property to show a huge loss and this is possibly the start of the turn around.
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The market had expected it for weeks and it's already factored in
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>> The market had expected it for weeks and it's already factored in
Spot on.
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>> My guess is they have written off the drop in value of their property to
>> show a huge loss and this is possibly the start of the turn around.
There wont be a "turnaround" to the days where tesco took 1 in every 7 pounds spent on the high street. What we have is a greater competition spread and normalisation back to the days of diversifying in shopping. The big BIG supermarket will have to change. Tesco wont reach its pinnacle again.
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Probably because the news wasn't as bad as had been feared. There had been quite a few trails about stores being mothballed etc.
I don't see them as a long term hold.
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>>There had been quite a few trails about stores being mothballed etc.
List of closures
www.bbc.co.uk/news/business-31023136
Previously - ghost stores
www.bbc.co.uk/news/magazine-31365003
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I do most of our shopping at LIDL, but also go to ASDA, Morrisons, Sainsburys and Tesco when we need something LIDL doesn't stock.
Yesterday I was late going out for a newspaper and ended up in a Tesco superstore. There have been big changes. The ranges have been reduced and the aisles looked wider (possibly because the end of aisle offers have been removed).
The most striking thing was that it was lunchtime, all tills were manned, but six of them had no customers. Usually there would be a queue at every one and I'd opt for the self-checkout aisle.
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Local town had Tesco and the opposition was the Coop. Coops folded and Tesco ran a small store at full tilt for 30 years - They did not build a large store then along came ASDA 5 years ago, built 40,000 sq ft store - cheaper + parking and the Tesco store carried on - until 4th April - 60+ people lost their jobs.
The only major retail store apart from ASDA and if the building is left to rot the other small businesses, already under pressure, will follow suit - local bakery closed recently & WH Smith closes in 3/4 months. So Asda looks to have time it well, from their point of view, but no other shop owners will have much to smile about.
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From BBC website
Around £4.7bn of the losses were the result of the fall in property value of its UK stores
So loss is not directly due to falling sales then? How the property value of stores can fall when house price is still rising?
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>> How the property value of stores can fall when house price is still rising?
Because the value of the store, which is as it is measured in their accounts, is the flat building/land price plus its worth as a retail site (existing footfall. for example).
Thus, if the amount of visitors to that site falls, then so does the value of that store.
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>> So loss is not directly due to falling sales then? How the property value of
>> stores can fall when house price is still rising?
The price of land in areas zoned as residential, is higher than that in out of town commercial zones.
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>> >>There had been quite a few trails about stores being mothballed etc.
Within 5 miles of my house, there are 9.... yes NINE tesco shops.
2 of those are full size shops, not just extras...
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>> Within 5 miles of my house, there are 9.... yes NINE tesco shops.
>> 2 of those are full size shops, not just extras...
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Is that all?
Where do you live - seems a bit light on shops. I've got fifteen Tesco shops and stores within five miles plus a further five One Stop shops, a convenience store chain which Tesco also own.
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>> Where do you live - seems a bit light on shops. I've got fifteen Tesco
>> shops and stores within five miles plus a further five One Stop shops, a convenience
>> store chain which Tesco also own.
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I don't think there are any within 10 miles, I think there's a couple within 15 miles. But I don't shop at Tescos, so not a drama.
Last edited by: VxFan on Thu 23 Apr 15 at 01:40
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How do you survive? What do you do if you need a pork pie at 3.30 am.? The three superstores in Norwich open 24 hours a day so no worries about waking up and feeling hungry or fancying a little light shopping.
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>> How do you survive?
Quite easily.
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>> 2 of those are full size shops, not just extras...
I assume you mean not just Express. Within 5 miles of here there are 26 including everything from Extras down to Express. There are 17 Express shops in that list.
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>> Within 5 miles of here there are 26 including everything from Extras down to Express. There are 17 Express shops in that list.
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I had no idea how many are around but I cannot quite match that number.
The key factor for me is that I only ever visit the Extra or Super sites and I have to be already passing as the nearest I consider visiting is five miles away.
Not a lot of purchases from this household.
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the following is long, and no doubt boring. I probably wouldn't read it. Its up to you. It could even be wrong.
>Why didn't they drop like a stone on that news?
Share price is not solely related to the value of that company. It is related to the trader's opinion as to the value of that share tomorrow, or at some other point in the future.
So even if a company is a total basket case, but a trader believes the share price will rise because of some spurious story, then he will buy that share with a view to selling it at a profit in the future.
Tescos situation is complex.
Tesco's sales and market share are still a leading position, its just not as "leading" as it was a couple of years ago. But it has still only reduced from about 33% at the top to about 29% now.
It still sold £70bn last year. That is a lot by any measure and dramatically more than the likes of Lidl and Aldi.
My point being that the company is far from a basket case.
So, what was the loss?
Presumably we all realise that capital expenditure (CapEx) is related to increasing the value of the company whereas operational expenditure (OpEx) is related to running it.
So if one is working a project that will increase the value of the company, then the value of that project is reported as an increase in the value of the company. If that project fails, or otherwise does not complete, then that project must be reduced from the value of the company and charged to OpEx.
They cancelled £1bn worth of new stores, so that's all charged and part of the loss.
They charged another £1bn from international projects.
They reduced the value of their existing stores (reducing the value of capital means that reduction must be put somewhere, since it was previously part of the value of the company, it is now a loss). That's another £4bn.
The remaining £0.5bn will be from "stuff" - restructuring charges, debt interest etc. etc. and including sorting out the damage from the last profit reporting fiasco.
And, by the way, their debt ratio is not great. However, if one doesn't have enough debt, then one is an attractive take over - asset strippers look for companies with loads of cash and loads of assets, buy it, wreck it and take the bits. Debt prevents that, but Tesco's debt is probably a bit too high.
Now, it could be said that all that lot has actually improved the quality of the company. Not unlike taking the excess small fruit of a fruit tree. Thus, it depends on what impact you think all that will have on the future, and whether or not that is the end of the massive charges. Again, not unlike having a bunch of other stuff taken into consideration in court is much better than a new charge materialising tomorrow.
All those things are charged as costs. Against that you have incoming money from sales. And Tesco has HUGE sales.
Their sales were less than previously - but that was mostly down to price reductions, not actually a lower number of items being sold. Arguably in the last few months they have sold MORE items, but not enough more to outweigh the drop in average unit price.
So, the situation today is not as bleak as one might think. What will make it bleak or not is;
How is their overall market changing?
The competition? How much, how good, how aggressive?
Have they now improved their foundations, or at least their valuation?
Outside factors (interest rates, property prices, salary costs, inflation)
Staffing levels and profile (less Head Office, more customer facing and less numbers overall
Business cost management
Future strategy etc.
For share price then also add;
What other people will think of the situation.
All in all that might suggest a gentle buy, or a continued hold. Those result in a small increase, not a drop.
However, it wouldn't take much to put people off, in which case even a gentle sell can snowball very fast.
Last edited by: No FM2R on Wed 22 Apr 15 at 12:56
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Thanks for taking the time to write that NOFM2R, I did read it and it makes a lot of sense.
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>> Tesco shares are still around the £2.40 mark. In fact today (after announcing a £6.4bn
>> loss) they are currently up over 2% on yesterday's close. Why didn't they drop like
>> a stone on that news?
At the moment, they are down 5%.
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The loss is all non-cash and Tesco is still making c £1bn a year, but that's a lot less than it used to.
What would worry me is that the UK business made an operating loss in the second half, which included Christmas.
Tesco has more debt than is apparent in the accounts - it has done some very fancy footwork with sales and leasebacks using SPVs and partnerships, financed by bond issues that do not appear on the balance sheet.
The problems are pretty fundamental I think, but it looks survivable - Tesco still has a massive market position and room to manoeuvre, and may well stay on top - but it seems very unlikely that the net margins it used to make will be restored in the foreseeable future, if ever - there is just too much capacity and competition.
It can only make limited sense to get emotional about a company, which is only a construct, and if it does struggle even more then of course the employees, about 300,000 of whom are in the UK, will be the ones who suffer. Nevertheless, some will find it hard to shed a tear especially all the bakers, greengrocers and butchers they have put out of business.
Last edited by: Manatee on Wed 22 Apr 15 at 16:58
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Nevertheless, some will find it hard to shed a tear especially all the bakers, greengrocers and butchers they have put out of business.
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Tesco put no one out of business - we did when we chose not to buy from them anymore.
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>>we did when we chose not to buy from them anymore
Exactly.
When Tesco charged 1p per pint less than the milkman, and a few pence less than the baker or the butcher or the fishmonger, we decided that price was more important than service.
But its so much easier to blame corporate evil rather than our own naivety, short-sightedness or stupidity. Or even simply to admit that our desires have changed.
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>> Nevertheless, some will find it hard to shed a tear especially all the bakers,
>> greengrocers and butchers they have put out of business.
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>> Tesco put no one out of business - we did when we chose not to
>> buy from them anymore.
More complicated I think. I don't blame Tesco - if you are doing a job (running a shop, maximising sales and profit) then you do it as well as you can. But it's an interesting topic.
To the extent that the results of opening very large shops that compete with smaller shops in the area puts the latter out of business is a bad thing (debatable in itself) the planning system has a lot to answer for.
Leahy always trotted out the "customers make the choice, not our fault if they want to shop with us" line, and he knew it was rubbish. 80% of customers might rather use the local baker, butcher and greengrocer but if 20% take their business elsewhere then there is a good chance that will be enough to push the small shops into decline and eventual closure, and other specialist but useful shops that exist on the footfall they create. The 80% then have to use the Tescburys as well.
It's ironic that the headlong rush of opening of new space has finally reached the point of hurting the people who started it.
I've worked with a couple of retail multiples whose strategy has been to win the space race. It turned out not to be a sustainable one for either, and the internet has just tightened the screw.
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Better meat from a proper butcher who knows you.
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More for the Song Against Grocers. Hope Tescos have a copy.
The hell-instructed Grocer
Has a temple made of tin,
And the ruin of good innkeepers
Is loudly urged therein;
But now the sands are running out
From sugar of a sort,
The Grocer trembles; for his time,
Just like his weight, is short.
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Tesco - shares - rtj70
