Tesco's U.S. Operations Face Investor Scrutiny
LONDON -- Although grocery chain Fresh & Easy was recently forecast to break even as early as later this year, parent company Tesco plc is facing more pressure from investors due to poor sales and a drop in shares this year, according to media reports.
Richard Black of Legal & General Investment Management, Tesco's third-largest shareholder with a 4-percent stake, told the Sunday Times that the U.K. chain should focus on its business plan in order to regain footing, which could potentially mean ending its banking services and its investment in America.
"Strategically, the business needs to think about its capital allocation and return on capital," said Black. "It needs to think long and hard about what it wants to be -- can it be everything to everyone, or should it focus on its gem, the British grocery business? Of course, this is likely to raise questions about other areas of the business, such as America and the bank."
Another anonymous investor that the Times identified as one of Tesco's top 10 shareholders went even farther, pointing to Fresh & Easy's "hundreds of millions of losses" as a sign to leave. "It was a brave move but, after identifying the strategy wasn't working, they should have pulled back faster," the source said.
This criticism comes after Tesco issued its first profit warning in living memory this past January, according to Reuters, prompted by its worst Christmas season in decades. Kantar WorldPanel data shows that the retailer’s market share dropped 0.4 percent to 30.2 percent in the 12 weeks leading up to March 18.
Last month, Tesco's U.K. CEO Richard Brashear stepped down after just a year on the job, to be succeeded by group CEO Philip Clarke.
A Tesco spokesman pointed to a number of initiatives the retailer has launched in order to get back on track. "We stay close to our investors and know what they expect of Tesco. We have a clear target to break even in America and in January, we reported that Fresh & Easy had continued its strong run of form,” the spokesman told Reuters. "In the U.K., we began our investment plan last summer, accelerated the pace in January and have already announced important initiatives, including a big investment in price, 20,000 more staff in stores and the launch of the Everyday Value range."
Tesco is set to publish preliminary financial results and present its investment plans for the British division on April 18.