Tesco (LSE: TSCO) launches a strategic review of Fresh & Easy.
The shares of Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) rallied 13p, or 4%, to 340p in early London trade this morning after the retailer essentially admitted defeat with its Fresh & Easy chain.
The FTSE 100 (UKX) member said it was "now clear" that its US division "will not deliver acceptable shareholder returns on an appropriate timeframe in its current form".
Tesco claimed it had received a number of approaches from parties interested in either acquiring part or all of Fresh & Easy, or in becoming a partner in the subsidiary.
Philip Clarke, Tesco's chief executive, said this morning:
"Following a year in which my priority for Fresh & Easy was to improve its performance, I have now made a fully informed assessment of its longer term potential."
"Whilst the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities. I have therefore decided to conduct a strategic review of Fresh & Easy, with all options under consideration."
Published during October, Tesco's half-year figures had showed the Fresh & Easy chain racking up a £74m loss from sales of £365m. Preceding annual results had revealed a £153m loss for 2012, a £186m loss for 2011, a £165m loss for 2010 and a £142m loss for 2009. The first Fresh & Easy store opened during November 2007.
Today's Fresh & Easy statement was announced alongside a third-quarter trading update.
Tesco said total sales improved by 1% during the quarter, with UK sales up 2% and overseas sales down 0.2%. Strong top-line performances within Tesco's Asian operations were offset by adverse currency movements within the group's European outlets.
Boss Philip Clarke remarked:
"I am pleased with the performance of our food business in the UK… Our general merchandise performance overall in the UK was not good enough, and we are renewing our efforts to deliver sustainable, profitable growth in this part of the business."
"I am looking forward to the important seasonal period ahead, and am confident in our plans to deliver further improvements in our shopping trip for customers."
Prior to today, City experts were expecting Tesco's current-year earnings to slide 14% to 32p per share and the dividend to remain at 14.8p per share. The projections currently place the shares on a P/E of 10.6 and yield of 4.4%.
Whether today's Fresh & Easy review, the third-quarter sales update and the current share-price valuation make Tesco a 'buy' today remains up to you.
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> Maynard does not own any share mentioned in this article. The Motley Fool owns shares in Tesco.