Why Tesco Plc’s New Focus Is Great News For Shareholders

After struggling to generate profits over the last couple of years, Tesco PLC (LON: TSCO) is going back to its core offering and I think that’s great for shareholders

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Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) has recently announced the opening of a flagship clothing store for its F+F brand at its Kensington superstore. The company plans to devote an entire floor to offer the whole of its clothing range to Londoners for the first time, with the opening due to take place in October/November of this year.

The decision is part of move to overhaul Tesco’s superstores in light of the difficulties it is experiencing to generate growth. Indeed, Tesco is moving away from selling discretionary items such as toys, DIY and electronics goods and towards staples such as food, clothing and health and beauty products.

This move sits very well with me and, if you are also a shareholder, I believe it is great news for you as well.

For the past few years, Tesco has been diversifying into various different offerings and its stores have been selling all sorts of items that you perhaps wouldn’t expect them to. Clearly, the move has not gone as well as expected (as a lack of sales growth and profitability shows) and it feels as though the company forgot what its customers actually wanted.

Indeed, Tesco’s past success has been built on offering great value consumer staples. Such an offering should have produced much better results during a recession, when hard-pressed consumers should have been flocking to the ‘best value supermarket’ but while J Sainsbury has recorded almost three years of positive like-for-like sales growth, Tesco has struggled to stay positive on its figures.

However, by going back to its roots and attempting to give customers what they want, I believe that the company will turn around its fortunes. Add to this a very undemanding price-to-earnings (P/E) ratio of 10.3, a yield of 4% and the fact that it trades at a discount to its sector and to the FTSE 100 (they trade on P/Es of 11 and 14.8 respectively) and Tesco looks to be a very attractive investment.

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> Both Peter and The Motley Fool own shares in Tesco.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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