Tesco 'faces £1 billion writedown ' getting rid of US chain Fresh & Easy
The full impact of Tesco's American adventure becomes clear today with a Telegraph report that getting out of its unprofitable Fresh & Easy business in the US will mean a £1 billion writedown. In a separate report by Bloomberg, Shore analyst Clive Black says it may cost about £250 million pounds in cash.
Focus now on UK market
Black wrote in a note to investors, the “greater area of interest is the cash costs from exit. Most investors will have already anticipated the paper adjustment to the asset base.”
Tesco CEO Philip Clarke is said to be reviewing all options for the U.S. stores and will report on progress at the company’s results on April 17.
Tesco has invested about £1 billion in the U.S. since 2007, targeting the West Coast with neighborhood urban stores in a market dominated by big-box supermarkets, said Bloomberg. In all it has opened 200 stores, focused on budget-priced, healthy food and own- brand items, employing 5000 people.
Apart from store disposals, the sale of the Riverside, California, distribution centre and three adjacent food factories, the closure of the Los Angeles head office and associated redundancy costs are all part of the equation.
While Aldi is seen as one of the potential buyers of the whole business , a closure of Fresh & Easy and then a piece-by-piece sale of the assets remains the most likely outcome, the Telegraph reported .
Tesco paid £40 million last year to offload a 50 percent stake in its Japanese unit.
It is refocusing on its domestic business having seen its market share in the UK squeezed by discounters like Aldi and more upmarket supermarkets like Waitrose and J Sainsbury, said Bloomberg.
Tesco shares are up 11 percent this year, giving the company a market value of £30 billion.
But the Telegraph said , Fresh & Easy "will go down as one of (previous boss) Sir Terry Leahy and Tesco’s biggest failures. Other retailers to have suffered in the US include J Sainsbury and Marks & Spencer."