Tesco Holds the Worst Kind of Record

A rare moment in a company's history could be when it sets a 100 year record. Highest sales, profits or headcount growth easily come to mind. But Tesco's upcoming record does not provide grounds for celebration. Britain's behemoth retail establishment is about to announce its largest annual loss in 100 years of business.

Loss forecasts range from £3-£5 billion for 2014. The loss is particularly ironic due to the year having been marked by then chief executive Philip Clarke overestimating profits by £263 million.

With new management at the helm, Tesco is hoping to quickly announce the loss before presenting improvement strategies. Despite the obvious bad news, the annual report should also reveal how the new no nonsense boss, Dave Lewis, has begun to improve company performance. Lewis has already set out hard measures such as layoffs and store closures in a first attempt to resuscitate the struggling superstore.

Problems upon problems

Besides a terrible year full of funny numbers and management changes, Tesco has been steadily losing market share to its competitors. This was partially why Lewis had to close unprofitable locations. If internal issues and external competition weren't challenging enough, there is also the seemingly never-ending Eurozone crisis. Tesco reported a £734 million loss of value in its European business, with sales in smaller European economies like Hungary and Ireland slumping badly.

Normally all of this would be reason enough to panic, sell stocks and cut losses. But Tesco's actions are setting the British giant up for a new start.

Back to basics

Mr. Lewis has not just closed unsuccessful stores. The new boss at Tesco has already scrapped the company dividend, declared the end of the pension scheme and has also sold off the loss-producing blinkbox service. The dividend cut was a no-brainer, because no company reporting losses can afford to pay dividends. Ending the pension scheme is a tough choice, but it ultimately reduces overhead costs. Selling off blinkbox is part of what Lewis has described as getting back to Tesco's core business.

Tesco 2014 was riddled with open wounds, but Tesco 2015 is showing signs of healing. The most obvious sign of recovery has been the resurgence of investor confidence as the stock price is ascending once more. If Dave Lewis can keep up the good work, it will be no surprise to see the company’s valuation exceed last year’s pre-crisis figures.

When to buy weakened stocks

Tesco is a perfect case study of when to buy, sell, and hold stocks. Now is an excellent time to buy Tesco shares. The price is low, but the company is making positive changes that will increase the value of the stock. For those who were looking to cash out, last May was the best time in recent history to have sold. There were strong earnings reports, but the first few signs of instability were showing. The next best time to sell will be once Tesco stocks have recovered to their May 2014 prices in the $300+ range.

For those who already owned Tesco stock, the smart move was to hold. Even as each new calamity was announced, it was time to hold. The best reassurance of the need to hold was the appointment of Dave Lewis. If you hold stock in a struggling company and they are willing to drop their underperformers for top performers, you should hold that stock until it has rebounded. For now, Tesco may be hurt, but it certainly isn’t dead. And with a leader like Lewis in charge, what hasn’t killed them will make them stronger.