Tesco Admits Defeat in U.S.


LONDON -- The shares of Tesco rallied 3.3% in London trade today after the retailer essentially admitted defeat with its Fresh & Easy chain.

The FTSE 100 member said it was now clear that its U.S. division "will not deliver acceptable shareholder returns on an appropriate timeframe in its current form."

Tesco claimed it had received a number of approaches from parties interested in either acquiring part or all of Fresh & Easy or becoming a partner in the subsidiary.

Philip Clarke, Tesco's chief executive, said this morning:

Following a year in which my priority for Fresh & Easy was to improve its performance, I have now made a fully informed assessment of its longer term potential. While 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.

Published during October, Tesco's half-year figures showed the Fresh & Easy chain racking up a 74 million pound loss from sales of 365 million pounds. Preceding annual results had revealed a 153 million pound loss for 2012, a 186 million pound loss for 2011, a 165 million pound loss for 2010, and a 142 million pound loss for 2009. The first Fresh & Easy store opened during November 2007.

Today's Fresh & Easy statement was announced alongside a third-quarter trading update. Tesco said total sales improved by 1% during the quarter, with U.K. sales up 2% and overseas sales down 0.2%. Strong top-line performances within Tesco's Asian operations were offset by adverse currency movements within the group's European outlets.

Clarke remarked:

I am pleased with the performance of our food business in the U.K. ... Our general merchandise performance overall in the U.K. was not good enough, and we are renewing our efforts to deliver sustainable, profitable growth in this part of the business. I am looking forward to the important seasonal period ahead, and am confident in our plans to deliver further improvements in our shopping trip for customers.

Prior to today, City experts were expecting Tesco's current-year earnings to slide 14% to 32 pence per share and the dividend to remain at 14.8 pence per share. The projections currently place the shares on a P/E of 10.6 and yield of 4.4%.

Whether today's Fresh & Easy review, the third-quarter sales update, and the current share-price valuation make Tesco a buy today remains up to you. However, one investor who has already decided Tesco is a buy is billionaire stock-picker Warren Buffett. The Oracle of Omaha owns about 5% of the retailer, and this free Motley Fool report reveals exactly why he bought and what price he paid. If you're tempted to follow Buffett into Tesco, please click here to read the exclusive report before you press the "buy" button.

The article Tesco Admits Defeat in U.S. originally appeared on Fool.com.

Maynard does not own any share mentioned in this article. The Motley Fool owns shares in Tesco. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.