Belfast Telegraph

Wednesday 23 July 2014

Tesco set to pull the plug in US

Tesco said its sales in the UK fell back into the red in its third quarter after a poor non-food performance held back improvements in its grocery arm

Tesco looks set to pull the plug on its ill-fated US venture after admitting it took a £1 billion gamble on America's grocery market that failed to pay off.

The supermarket giant announced a review of its US business Fresh & Easy that could see the 199-strong chain sold off or closed, while it also said US boss and 30-year company veteran Tim Mason was leaving with immediate effect.

The announcement overshadowed Tesco's third quarter trading figures, which showed UK sales slipping back into the red after a poor non-food performance held back improvements in its grocery arm.

Chief executive Philip Clarke admitted the general merchandise performance was "not good enough" as the group reported a 0.6% fall in like-for-like sales excluding VAT and fuel in the 13 weeks to November 24.

But the group's shares rose 3% as the City gave its approval to the Fresh & Easy review. Clive Black, retail analyst at Shore Capital Stockbrokers, said it was the right decision and marks "one of the most high profile and perhaps defining moments" in Mr Clarke's tenure since taking on the top role last March.

Speaking from Los Angeles, Mr Clarke said the review could see the US business sold off, closed or placed into a partnership with another retailer, but would likely result in its presence in the US coming to an end. He stressed the business and its 5,000 staff would continue to operate as normal while the review is under way.

Tesco, which recently reported its first drop in profits in 20 years, said it had invested £1 billion in Fresh & Easy since its launch in 2007. But the chain has never made a profit, losing £74 million in the first half of this year, while it saw sales slip below 2% in another disappointing performance in the third quarter.

Mr Clarke has not said how much it is likely to cost to pull out of the US, but said his priority was to deliver long-term value for shareholders.

Tesco said it had already received approaches from a number of potential buyers for some or all of the US business, as well as groups interested in partnering with Tesco to develop the Fresh & Easy business.

In the UK, the third quarter figures show that, despite tough non-food trading, Tesco's fightback against resurgent rivals is beginning to pay off. It grew grocery sales by 1.2% on a like-for-like basis and said it outperformed the market.

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