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April 15, 2008

UPDATE – US/UK: US unit to “last a generation” – Tesco

Tesco’s US venture will “last for a generation”, chief executive Sir Terry Leahy said today (15 April).

Tesco’s US venture will “last for a generation”, chief executive Sir Terry Leahy said today (15 April).

The UK retail giant has faced claims that the early performance of its Fresh & Easy stores had not met internal targets.

However, speaking as Tesco issued its preliminary results, Sir Terry brushed off the claims and said he had been “very encouraged” by Fresh & Easy since its launch in November.

“It is too early to make definitive judgements but customers do love the stores,” he said. “It is now only 167 days since we opened the first store and we are only a few weeks into a project that I see lasting a generation.”

Analysts in the US have questioned if the 61 Fresh & Easy stores were meeting sales targets; claims that Sir Terry labelled as “gossip”.

When asked if he would have done anything differently when drawing up the plans to launch the business, he added: “The only thing I regret is not doing it 20 years ago. Customers love our offer of fresh food, prepared food and own-brand.”

Losses from the Fresh & Easy venture have reached US$62m, below Tesco’s target of $65m. The company said losses would rise to $100m this year before falling as rising volumes eat into overhead costs.

Sir Terry described the losses as “containable”. He said: “Because we opened relatively late in the financial year, most of the opening costs have come into this financial year. Because the US is such a developed market, we have loaded up-front in terms of getting in experienced management and category management. We have lost a bit up-front but it will help us go faster down the line.”

The Tesco chief executive praised the company’s broader international business, which now accounts for 50% of earnings.

“Our new businesses are really coming of age; they are about the same size as Tesco was a decade ago when it started out internationally. We’ve built a whole new Tesco in the last few years and the group’s growth perspectives are better now than ever before.”

On a group basis, Tesco posted underlying pre-tax profits of GBP2.8bn (US$5.5bn) for the year to 23 February, as sales climbed 11% to GBP51.8bn.

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