Marks and Spencer (LSE: MKS) used to be a darling of the UK high street. However, in recent years, the company has made several strategic errors, and its presence is now dwindling. As such, long-term investors may be better off buying the Tesco (LSE: TSCO) share price instead.
Tesco share price growth
Five years ago, Tesco was embroiled in an accounting scandal. The group’s profits plunged, and some analysts started to question its long-term viability. As investor sentiment slumped, the Tesco share price followed suit.
But, in the years since, the group has transformed itself. Profits and profit margins have boomed, and the group has been able to restore its dividend.
M&S didn’t have the same problems in 2014, but that hasn’t stopped the company struggling. In fact, over the past five years, shares in the retailer have declined by a staggering 80%, excluding dividends. The Tesco share price has produced a positive total return over the same time frame.
It has been struggling for several reasons. The company’s core clothing division has lost customers in recent years, and its younger food business has failed to make up for this lost business. The group has issued an endless stream of profit warnings, and has tried to restructure. But the organisation just cannot keep up with competitors like Tesco.
Tesco doesn’t offer the same range of products as M&S. Instead, the company has doubled down on its core food business. Looking at the performance of the Tesco share price over the past five years, this appears to have been the right decision.
This trend may continue in the years ahead. While Marks and Spencer has signed an agreement with online retailer Ocado to help boost its food business, it may be too little, too late. Few retailers can compete with Tesco’s size and scale in the UK grocery market.
At the same time, Marks and Spencer’s clothing business continues to struggle. This may hamper the group’s efforts to expand in other areas.
Meanwhile, the Tesco share price is firing on all cylinders. The company recently achieved its profit goals laid out at the start of its turnaround.
What’s more, despite the coronavirus crisis, management recently confirmed the organisation will be paying a dividend this year.
Tesco’s defensive nature and a countrywide network of essential stores has helped the company navigate the coronavirus crisis. While management does expect the crisis to have an impact on the group’s cost base, higher sales will offset the increased costs.
As such, now may be a good time for investors to abandon Marks and Spencer and buy the Tesco share price instead. The former has been struggling to find its direction for many years, and this seems unlikely to change any time soon. Tesco, on the other hand, has spent the past five years fortifying its position in the UK retail sector.
The post Forget Marks and Spencer! I’d buy into the Tesco share price instead appeared first on The Motley Fool UK.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Tesco. 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.
Motley Fool UK 2020