Broker claims Tesco's US chain is in deep trouble

Supermarket giant Tesco received a double blow today as City analysts claimed the grocer's new US chain is in deep trouble, while its core UK business is being battered by the economy and losing ground to rivals.

Eklenme Tarihi : 24 Mart 2008 Pazartesi
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One claimed the new California-based convenience stores are missing sales targets by as much as 70% as US shoppers spurn the new Fresh Easy stores.Seperately, analysts at Goldman Sachs downgraded the retail giant, urging investors to sell Tesco shares. The shares lost 7p to 386.75p - their lowest level since October 2006.In a research note entitled Miles Off Target, Mike Dennis of US broker Piper Jaffray says research among the grocer's US suppliers suggests first-half sales at Fresh Easy could be just $30m (£14.71m), compared with the $100m the broker had expected.The analyst says the issue is very weak footfall and points to the appointment of Jeff Adams - an American executive recruited from Tesco's operation in Thailand - as evidence of a growing crisis within the West Coast-based business. The Piper Jaffray note says Adams has been parachuted in as deputy to Tim Mason, the former Tesco marketing director who was sent to start the US chain with a team of other British executives. Dennis says: He is tasked with understanding what has gone wrong with the concept and how they are to recover, if at all, their $700m+ investment so far.However, Tesco said the analyst's claims were untrue. We are completely bewildered by this note, which is utterly baseless, said a spokesman. We are very pleased with customer reaction to Fresh Easy, which is growing rapidly.The company described Adams' appointment as succession planning.Tesco boss Sir Terry Leahy has big ambitions for the Fresh Easy business. He has said it could be as big as the core UK business and Mason has outlined plans to build the chain - which opened last November and has already opened 50 stores - into a network of 1,000 stores stretching across California, Nevada, Arizona and north to Washington state. The stores have basic fittings and aim to focus on fresh food and ready meals at market-leading prices. Dennis also says Tesco is facing problems in the UK, with a relatively poor performance in its online businesses. He expects Tesco to announce redundancies in both businesses.The Tesco spokesman admitted there are likely to be some redundancies within the group, but said they were regular changes that happen every year.Last week market research group TNS, whose data is regarded as the gold standard by food retailers, released figures showing Tesco underperforming the wider grocery market and its market share slipping from 31.3% to 30.9% over the past year. Rival Morrisons, meanwhile, has been winning new customers and seeing its market share hit a new record. Asda is also outperforming Tesco.Sources close to Tesco also suggest that the stores are failing to hit internal targets on non-food sales. Fashion sales are said to be particularly disappointing.Goldman Sachs has pinpointed US and UK supermarkets as under particular pressure as a result of rising inflation and the consumer downturn. The broker's analysts say the UK is a high risk market and that Tesco is underperforming the UK grocery market in a significant way compared with its robust performance track record. The two notes came as John Lewis released data showing declining sales last week in all but two of its 25 departments stores. John Lewis sales figures are regarded by investors as a bellwether for the state of the retail sector. Last week Tesco announced that it was expanding Fresh Easy into northern California and had identified 19 sites around Sacramento. It also plans to build vast a new distribution centre in the San Francisco Bay area to service hundreds of stores as far north as Seattle.http://www.guardian.co.uk
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