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December 4, 2012 11:30 pm
Tesco is set to signal today that it is calling time on its American dream, with a review of its lossmaking Fresh & Easy venture.
Philip Clarke, chief executive of Britain’s biggest retailer, is expected to announce a strategic review of Fresh & Easy, alongside its third-quarter trading update on Wednesday.
The move comes in spite of repeated denials by Tesco that it is considering leaving the US or mothballing more stores there.
The options under consideration are expected to include leaving the US or remaining in the country in some form, such as a joint venture or partnership.
Walmart, the world’s biggest retailer by sales, is regarded as a natural buyer of some of the Fresh & Easy assets as it is opening smaller stores in the US, particularly in California.
Tesco has invested £1bn in Fresh & Easy since its inception five years ago under Sir Terry Leahy, the former chief executive. It is expected to make losses of about £850m from the US business until February 2013.
The move to reconsider the investment in the US will please investors, many of whom have been calling for the company to quit the country.
Pulling out of the US could prove expensive, however, as Tesco might have to write off all or part if its investment. The move would raise questions about the future of Tim Mason, head of the group’s US operations and the company’s deputy chief executive.
Like-for-like sales at Fresh & Easy are forecast to rise between 4 and 5 per cent in the three months to the end of November, according to Shore Capital. This would be only marginally ahead of the 3.6 per cent increase in the first quarter, regarded as disappointing by the market.
The potential change of direction in the US comes as Tesco battles headwinds in the UK and its first profit warning in 20 years .
The retailer is investing £1bn in turning round its UK business and was given a boost on Tuesday with data from Kantar Worldpanel, a consumer research group, suggesting Tesco experienced stronger than expected sales growth in the past four weeks.
In the four weeks to November 25, Tesco sales rose 2.7 per cent year on year, ahead of the market at 2.5 per cent, making it the fastest growing of the big four supermarkets. Its grocery sales rose 5.2 per cent in the period, according to Kantar, compared with the market at 3.1 per cent, indicating that the retailer’s performance is being adversely affected by sales of non-food items.
Today’s third-quarter update is expected to reveal flat to slightly negative sales growth for the three months to the end of November. This represents a slowdown from the second quarter, when Tesco had its first rise in UK like-for-like sales for two years, up 0.1 per cent in the three months to the end of August.
Analysts at Deutsche Bank, joint broker to Tesco, forecast a 0.8 per cent decline in Tesco’s UK like-for-like sales in the third quarter, driven mostly by weakness in non-food, while Shore Capital forecasts flat sales to a 1 per cent decline.
However, Dave McCarthy, analyst at Investec Securities, said it was possible Tesco’s sales could be better than forecast, as recent trading will have been “flattered by the timing and nature of promotions”.
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