Tesco Expected to Exit the US

on Dec 5, 2012
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Tesco (LON:TSCO) announced today it is initiating a strategic review of its US business, which is very likely to lead to the decision of scratching the entire operation in an effort to minimise losses. “[The review] might lead to a sale of Fresh & Easy, or partnering the business. But it is likely that our presence in America will come to an end,” said Philip Clarke, chief executive of the company. “In recent months, we have had a number of approaches from parties interested in acquiring either all or part of Fresh & Easy, or in partnering with us to develop the business.”

The UK’s biggest retailer said it is now clear that Fresh & Easy will not deliver satisfactory returns for shareholders within an appropriate timeframe and that a final decision on the matter is expected when the company publishes its full-year results in April.
Tim Mason, head of Tesco’s US division who has been at the company for 30 years, will quit the group immediately. Mr Clarke didn’t confirm whether Mr Mason was pushed out of the job but said that he had “played an important part in our success over a 30-year career with the company, and he leaves with my thanks and good wishes”.

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The Guardian reported that a number of US Labour Unions have voiced their dissatisfaction over the fate of Fresh & Easy, which they claim could have been avoided. The vice-president of United Food and Commercial Workers union Pat O’Neill explained that Tesco should have been more involved with its customers and community shareholders and should have made a greater effort to address the countless underlying problems and warning signs.

The market saw the news of a possible US exit as a positive sign and Tesco’s share price jumped by almost 5 percent to £3.4030. The stock has lost 19 percent of its value since the start of the year.
**Tesco’s Shares Downgraded**
This week the Telegraph reported that forecasters at Espirito Santo downgraded their rating of Tesco’s stock from “neutral” to “sell” on the back of predictions that sales won’t grow in 2013/2014, triggering a further drop in operating profit.

“Twenty-nine per cent of UK consumers now choose to do their majority of the food retail shopping at a Tesco store or online, down from 34 percent in the first quarter of 2012 and 35 percent in 2011.” Espirito Santo said in a note to clients titled “two steps backwards, one step forward”.
!m[Britain’s Biggest Retailer Initiates £1 Billion Turnaround Strategy](/uploads/story/970/thumbs/pic1_inline.png)The British retailer has lost market share to rivals including Sainsbury, Lidl and Aldi, as the improvements in staff and products, part of Mr Clark’s overhaul programme initiated in the Spring, have not yet been felt by customers. Tesco has begun carrying out a £1 billion turnaround plan meant to improve food production and revitalise the stores with the company hiring 8,000 extra staff.

In its trading update, the British retailer said that consumer spending has significantly weakened in Central Europe, particularly in Slovakia, the Czech Republic and Poland. Better performance in Asia slightly offset the decline in Europe with improving sales in Malaysia, Korea and Thailand. The business in China however has been growing less rapidly than expected due to “a continued slowdown in economic growth and lower consumer spending”.

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