Tesco's Dividend Safe, For Now

Oct. 17, 2012 10:08 AM ETTesco PLC (TSCDF)JSAIY, JSNSF, WMT3 Comments
Steven Dotsch profile picture
Steven Dotsch

Early this month, Tesco (OTCPK:TSCDF) reported a 10.5 percent drop in group trading profits for the first half of the year, its first decline in 20 years. Sales in its key UK market grew by 0.1% in the second quarter, (only) just halting an 18-month slide in its sales and broadly meeting low expectations, as the group is in the midst of a major UK turnaround plan after making a surprise profit warning in January.

With the exception of Tesco Bank, showing a doubling in trading profits to £94m ($151 million U.S.), profits from all of the group's other major divisions spanning Europe, Asia, the U.S. and the UK went into reverse.

I hope that you were not expecting a quick turn-around message from Tesco this time round, as it has only just embarked upon on its all-important UK recovery strategy, some of which I outlined in an earlier article.

The United Kingdom - initial step(s) to recovery?

While UK like-for-like sales growth has improved since the last update, and with sales growth having outperforming the industry, this has primarily been achieved by more discounting. A rather short-term solution to some of its UK problems. UK sales have "been bought" at the expense of profits, which are down to 12.4 percent in the UK.

In the five months since CEO Clarke launched his "fightback," the group has recruited 8,000 more staff to give customers better service at its 3,000 UK stores, devoted more store space to food, given stores a "warmer look" and revamped food ranges.

The group has spent more on money-off vouchers and marketing that makes use of customer information gleaned from its Clubcard loyalty scheme, and rolled out a new service to let online shoppers collect their orders at the store.

This has resulted in the 0.1

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Steven Dotsch profile picture
From a very young age, Steven learned the value of money and saving. He started saving money when he was only five, washing his father’s car and started to invest in Dutch shares when he was fourteen. Following university in Amsterdam, Steven pursued a career in merchant banking in The Netherlands. Since 1989, he has been living and working in London. Steven left the City in 1998 and since then, has been involved both as a founder as well as an early stage investor with a number of online and mobile telecoms ventures, including Ukonlineinvesting.com – a now defunct website which was aimed at longer term investors interested in making better informed investment decisions. In 2009, Steven started Early-Retirement-Investor.com, a website aimed at professionals and expats wanting to retire earlier and richer. In 2010, Steven launched Dividend Income Investor, to demonstrate the benefits of dividend income investing based on his own unique investment research approach, buying shares at historically undervalued levels. For more on Steven, click http://www.dividend-income-investor.com/about-steven-dotsch/

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