INVESTORS have welcomed Tesco’s decision to review the future of its Fresh & Easy chain in the US, which could mark its second retreat from an overseas market within a year.
Having ploughed £1 billion into the venture since opening its first store in California in 2007, the supermarket giant – which recently reported its first drop in profits in 20 years – admitted that its loss-making chain will not deliver “acceptable shareholder reforms” in its current form.
Tesco’s deputy chief executive and marketing boss Tim Mason, who ran the US business, has left the company after a 30-year career with a pension pot worth £9 million.
Espirito Santo analyst Caroline Gulliver said the US business had been expected to rack up losses of at least £135m this year, but the final hit could be “significantly higher” as sales rose just 1.8 per cent in the third quarter, far below forecasts of 8 per cent.
The group has received a number of approaches from parties interested in acquiring either all or part of Fresh & Easy, or forming a partnership to develop the chain.
Chief executive Philip Clarke said: “Whilst the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities. I have therefore decided to conduct a strategic review of Fresh & Easy, with all options under consideration.”
Shore Capital analyst Clive Black said the review marked a “defining moment” in Clarke’s reign, which has also seen Tesco admit defeat in Japan and exit that market nine years after establishing a foothold in the country.
Black said: “We welcome this review and believe that the market will too.”
Shares in the group rose 3.3 per cent or 10.8p to 337.45p after the announcement, which was accompanied by news of falling sales in the UK, where Tesco is the market leader.
Clarke said the retailer’s non-food performance was “not good enough” as it reported a 0.6 per cent fall in like-for-like sales excluding VAT and fuel for the 13 weeks to 24 November. That compared with a 4.4 per cent increase in sales in Thailand and small increases in Hungary, Malaysia and the US – the only countries to grow sales in Q3.
Revenues at the group’s Edinburgh-based Tesco Bank fell 1.6 per cent in the third quarter, the decline blamed on the continued run-off of its legacy insurance business, although customer numbers and balances were up, boosted by credit card and loan offers.
Fresh & Easy employs around 5,000 staff across 200 stores in Arizona, California and Nevada.
Investor group Change to Win, which advises pension funds sponsored by US trade unions, had called on Tesco to review the chain’s future earlier this year, and said it would keeping a close watch on the retailer’s plans.
Director of global relations Dieter Waizenegger said: “For the past five years, Tesco couldn’t develop a path towards profitability for Fresh & Easy and lost nearly £1bn.
“We hope this review is a sign that Tesco is taking shareholder concerns seriously by finally providing investors with more clarity and transparency about its US strategy.”