Tesco (LSE:TSCO) shares have underperformed in recent years, but so have many UK-listed stocks. The supermarket giant is currently down 21% over 12 months, and is only up 7% over the past five years.
So, with the share price pushing downwards amid a cost-of-living crisis, is now the time to add this stock to my portfolio?
Challenging operating environment
Supermarket sales surged last month, driven by historic levels of food inflation. According to NielsenIQ, total till sales jumped 7.6% in the four weeks to 3 December, compared to growth of 5.3% in the previous month.
Tesco, the UK’s largest grocer by market share, saw sales rise by 6.5%. Peers like Morrisons and Waitrose saw sales fall 3.3% and 1.5% respectively.
So, revenues are increasing. But the challenge is that costs are increasing too. And amid that cost-of-living crisis, the big question is: how much of these costs can supermarkets pass on to their customers?
Sales have undoubtedly risen strongly in the lead up to Christmas. Experts at McKevitt recently said that the combination of record inflation and festive spending meant December was likely to be the biggest ever for take-home grocery sales.
However, analysis suggested that shoppers will have needed to spend an extra £60 in December to acquire the same items as last year.
Margins
Margins are likely being squeezed with inflation pushing product costs, staffing costs, and energy costs higher. It’s worth noting that food stores are some of the biggest energy users in the country. With energy prices going sky high, these giant supermarkets are costing a fortune to heat up and to cool down.
The feared onslaught from the cut-price Aldi and Lidl really hasn’t materialised. But this is probably coming at the expense of margins. Price matching with the low-cost European firms will cost the FTSE 100 firm in the near term, but in the long run, protecting its market share should be worth it.
Tesco’s profit guidance has been trimmed as a result. The most recent guidance remains within the low end of the previously announced range. In October, the firm said it expects full-year retail adjusted operating profit of between £2.4bn and £2.5bn as half-year profits fell 65% to £413m.
Is there an upside?
With grocery retail, there are plenty of variables that aren’t always easy to predict.
For example, Tesco isn’t known for being a cut-price supermarket, but despite the cost-of-living crisis, it has outperformed several of its peers with regards to sales in recent months.
Both Waitrose and Morrisons, arguably at opposite ends of the market, have seen sales fall.
So, would I buy Tesco shares? Not right now. I’m concerned about the operating environment over the next six months. I appreciate the firm has the resources to see an economic downturn through, but there are plenty of uncertainties in the coming months.
By all means, these uncertainties could be positive. Tesco might take more market share from its competitors. But the uncertainty doesn’t appeal to me, even with the near-5% dividend yield.
The post Can high-yielding Tesco shares supercharge my portfolio after Xmas sales surge? appeared first on The Motley Fool UK.
Could the ‘death of print magazines’ expose another new share pick?
We think print magazines are going extinct.
Marie Claire, NME, FHM and Loaded have all joined the choir digital. Many more famous titles have been wiped out entirely. However, all that wealth has NOT been destroyed. Instead, it’s moving to a hidden area of the industry most people never see.
This company in particular is greedily swallowing the spoils.
These past 5 years – while print readership has sharply declined – its revenues surged by 880%, and at a faster compounded rate than Google and Amazon! Meanwhile, profit margins have surged over 20X. Even if this growth doesn’t continue, we think it’s in a stronger position than ever before.
And thanks to the recent market mayhem, its shares are down over 50% from their previous highs. Now might be a rare second chance to grab a share of this monstrous growth.
All is revealed in this special report, ‘One Top Growth Stock from The Motley Fool’.
Secure your FREE copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
2 hand-picked FTSE 100 shares to buy in 2023
Should I buy Tesco shares this Christmas?
3 reasons I’d consider buying Tesco shares
Are Tesco shares a no-brainer buy for 2023?
2 FTSE 100 stocks I’ll avoid at all costs in 2023!
James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.