Tesco revamp is encouraging for investors but remains a ‘hold’

As supermarket giant, Tesco, reports full year results Sheridan Admans, investment research manager at The Share Centre, explains what they mean for investors.

"Tesco's results this morning were in line with market consensus as the retailer announced a new strategy which sees capital expenditure of £1bn to turn around UK operations. The strategy will focus on fresh food, changes to its value brand and a revamp of company brand and marketing. The retailer is putting an emphasis on "doing basic things better", which will include more staff, better quality and range, warmer stores and friendlier service.

"Trading profit for the year was up slightly to £3.8bn from £3.7bn last year. Although UK sales were down 1%, international sales rose by 17.7%. Tesco aims to continue to reduce the loss at its Fresh ‘n' Easy stores in the US in 2012.

"New space opening is expected to be reduced by a third and investors will be interested to hear Tesco is expecting future growth to be driven by online operations and smaller stores on the high street. Tesco has been increasing its investment in online operations as competition accelerates.

"The dividend increase of 2.1% will please investors however, although the dividend looks secure for the time being dividend growth is likely to remain challenging. Tesco expects to make a modest progress in 2012 due to the diversity of its operations. However, it is a big company and we expect the implementation of Tesco's new strategy and the regain of market share to take some time. We continue to recommend investors ‘hold' for now. The share price is up on yesterday's close price, however trading was flat on the market opening in early trade this morning."