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September 19, 2012

WRC 2012: Fresh & Easy “fighting nicely” – Tesco CEO Clarke

Tesco CEO Philip Clarke today (19 September) insisted the UK retailer would continue to persist with Fresh & Easy, the US chain that has concerned some in the City.

By Dean Best

Tesco CEO Philip Clarke today (19 September) insisted the UK retailer would continue to persist with Fresh & Easy, the US chain that has concerned some in the City.

The retailer opened its first Fresh & Easy store in California in 2007 but the venture has yet to break even.

The performance of the business has attracted criticism from some investors and analysts. However, Clarke, who became Tesco chief executive last year, has kept the retailer’s presence in the US even as he quit Japan, another market it had found challenging, although he publicly insisted Fresh & Easy’s financial results has to improve.

Speaking at the World Retail Congress in London, Clarke conceded Tesco, which opened its first Fresh & Easy store in 2007, had had “ambitions to be in many locations around the West Coast” and had “slowed” its expansion plans.

However, he was upbeat about Fresh & Easy’s prospects and said the chain, which numbers 200 outlets, was competing well against established US chains.

“The stores we have continue to grow nicely. The reason it’s worth persisting with is the stores fulfil a particular need for a particular group of customers. It’s only five years old. It’s playing in a playground with some very big and some very old retailers that are very wise and it’s fighting nicely,” he said.

In its first-quarter trading update in June, Tesco said Fresh & Easy’s like-for-like sale growth had slowed as it “annualised three years of strong sales progress”. However, it said sales “momentum” from the chain was “positive” and explained it was focusing on getting its stores profitable first before pushing on with expansion. In April, Tesco forecast Fresh & Easy would break-even by February 2014.

Tesco reports its half-year results next month and, in a note to clients ahead of the numbers, three weeks ago Shore Capital said it predicted higher full-year losses from Fresh & Easy than it initially forecast. Shore Capital now thinks Fresh & Easy’s losses will hit GBP127.6m, compared to its earlier forecast of GBP103m, although still 17% lower than a year ago.

“Whilst pre-opening costs will ease as new stores are held back we remain concerned about trading momentum and prevailing negative operational gearing,” Shore Capital analyst Clive Black and Darren Shirley wrote.

Clarke said recent changes at Fresh & Easy were paying off, with the stores enjoying sales growth ahead of the US market.

“We’ll continue to hopefully see those sales grow and move towards profitability,” he said. “Already the changes we have been making have gone some way to prove that there is life in Fresh & Easy yet.”

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