Why I'm Finally Tempted To Sell Tesco plc

Tough at the top

These are tough times for Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) and so far I have responded by toughing things out. But even the toughest investor eventually has to admit defeat. Is now finally the time to sell Tesco?

I wished I had dumped it three years ago. Since then, it has fallen 25%, against a 10% rise for the FTSE 100 as a whole. Over five years, Tesco's share price hasn't budged at all. Its problems are well documented. It has made disastrous forays abroad, not just in the US but also Asia, where sales have slumped in Korea and Thailand. It has also been losing ground at home, as Sainsbury's ups its game, Lidl and Aldi grab share at the bottom of the market and Waitrose storms the high ground.

Scruffy performance

Worse, Tesco has suffered what I call the 'Ryanair effect'. Customer griping about rude staff and scruffy stores has finally hit results, with a 1.5% fall in Q3 like-for-like sales. The cost of living crisis has made matters worse, as Tesco moans that its customers' real incomes have fallen 10% since 2007. Its share price is down another 13% in the last three months, a sign that investors are losing faith. Earnings per share are forecast to fall 6% in the year to February 2014, and climb only a modest 3% to February 2015. Gloomy stuff.

Group chief executive Philip Clarke has been working hard to turn things round, however, with the supermarket's £1 billion Building a Better Tesco campaign. He has battled to make its stores family friendly destinations, dropping Giraffe restaurants and Harris & Hoole artisan coffee shops into its warehouse stores. Sales in refurbished stores have risen.

Better still, the Tesco 'hudl' 7-inch tablet looks like one of the retail hits of the festive season, with a forecast 600,000 sales by the end of 2013. Nicely priced at £119, loyal Clubcard holders can get it for as little as £60. Its success will reassure some investors that Tesco hasn't lost its populist touch. Tesco is also taking on the high-street banks by starting to offer current accounts. It will recruit 600 staff over the next two years, as it expands its personal finance offering. With new rules making it easier to switch current account, Tesco could pick up valuable share.

Keep taking the tablet

And it hasn't given up on its foreign ambitions, recently launching a £345 million joint venture with China Resources Enterprise to pioneer hypermarkets, supermarkets, convenience stores, cash-and-carry businesses and alcohol sales in the country. Maybe it has a better chance of success working with a local partner. Time will tell.

Christmas is now key. If things go wrong, I will be gone, and so, I suspect, will its under fire boss Philip Clarke. But I'm holding on for now, reluctantly. One festive set of figures could quickly reverse sentiment. Plus Tesco offers a juicy yield of 4.6%. Finally, I hate selling stocks cheap, and Tesco now trades at a cut-price nine times earnings. That might tempt the really tough guys among you to buy instead.

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