UK retail giant Tesco’s (TSCO) entry into the U.S., by way of its Fresh & Easy stores, was anything but elegant. Former Tesco CEO Terry Leahy proclaimed that although the U.S. stores were falling short of targets they were, never the less, performing well enough to warrant continuing operations.
Tesco recently released their preliminary results for the year ending February, 2011. Again the Fresh & Easy operation fell short of targets possibly due to two food supplier acquisitions. The results said the following in regard to the U.S. operations:
"Losses in Fresh & Easy increased in the year. Whilst this did not meet our guidance issued at the beginning of the year, it was a consequence of the initial costs of integrating our acquisitions of two dedicated fresh food suppliers, 2 Sisters and Wild Rocket Foods, and exchange rate movements. These businesses have now been fully integrated with our existing kitchen operations, with substantially improved financial performance, product quality and service levels."
"We expect losses to reduce sharply in the current year as strong growth in like-for-like sales continues and improved store operating ratios start to deliver individual shop-door profitability. Despite the higher losses in 2010/11, the overall business remains on-track to break-even towards the end of the 2012/13 financial year.
"Customer feedback remains excellent and our clear objective now is to accelerate the strong growth in customer numbers we are seeing, which is driving sales per store steadily towards the levels we require. These trends, combined with benefits of the growing scale of the store network around our Riverside distribution centre and manufacturing campus, give us confidence that the components of a profitable business model are coming together.
"Although there is clearly some way to go, with these key elements moving in the right direction, we plan to accelerate the rate of new store opening to around 50 in the current year. With the improvements in our distribution centre and manufacturing campus productivity, resulting from the acquisition of the two suppliers, we now expect to reach break-even with around 300 stores trading, rather than the 400 we originally anticipated."
It seems that some major shareholders are still somewhat disgruntled regarding the U.S. operations. Warren Buffett and Charlie Munger mentioned, during last weekend’s Berkshire Hathaway annual meeting, that Tesco take a long hard look at its struggling American business.
Berkshire Hathaway Vice-Chairman Charlie Munger unleashed his tongue on the Tesco U.S. entry as follows: "We’re huge admirers of Tesco but I do think what they’re trying to do is hard. I could have told Tesco if they had asked me, but they didn’t." Munger added, "I’m not critical, I just think it’s difficult to be the new boy." Tesco faces tough competition from Trader Joe's and Costco (CSCO).
It will be interesting to see how Clarke, whom is still not fully committed to Fresh & Easy, will handle the U.S. operations.
Disclosure: I hold Tesco shares
I am a partner at www.shareladder.com for whom I write a newsletter. Currently the portfolio constructed from the newsletter is up 42% over the last year. The investment principles I follow are mainly derived from the Benjamin Graham school of investing.
Tesco recently released their preliminary results for the year ending February, 2011. Again the Fresh & Easy operation fell short of targets possibly due to two food supplier acquisitions. The results said the following in regard to the U.S. operations:
"Losses in Fresh & Easy increased in the year. Whilst this did not meet our guidance issued at the beginning of the year, it was a consequence of the initial costs of integrating our acquisitions of two dedicated fresh food suppliers, 2 Sisters and Wild Rocket Foods, and exchange rate movements. These businesses have now been fully integrated with our existing kitchen operations, with substantially improved financial performance, product quality and service levels."
"We expect losses to reduce sharply in the current year as strong growth in like-for-like sales continues and improved store operating ratios start to deliver individual shop-door profitability. Despite the higher losses in 2010/11, the overall business remains on-track to break-even towards the end of the 2012/13 financial year.
"Customer feedback remains excellent and our clear objective now is to accelerate the strong growth in customer numbers we are seeing, which is driving sales per store steadily towards the levels we require. These trends, combined with benefits of the growing scale of the store network around our Riverside distribution centre and manufacturing campus, give us confidence that the components of a profitable business model are coming together.
"Although there is clearly some way to go, with these key elements moving in the right direction, we plan to accelerate the rate of new store opening to around 50 in the current year. With the improvements in our distribution centre and manufacturing campus productivity, resulting from the acquisition of the two suppliers, we now expect to reach break-even with around 300 stores trading, rather than the 400 we originally anticipated."
It seems that some major shareholders are still somewhat disgruntled regarding the U.S. operations. Warren Buffett and Charlie Munger mentioned, during last weekend’s Berkshire Hathaway annual meeting, that Tesco take a long hard look at its struggling American business.
Berkshire Hathaway Vice-Chairman Charlie Munger unleashed his tongue on the Tesco U.S. entry as follows: "We’re huge admirers of Tesco but I do think what they’re trying to do is hard. I could have told Tesco if they had asked me, but they didn’t." Munger added, "I’m not critical, I just think it’s difficult to be the new boy." Tesco faces tough competition from Trader Joe's and Costco (CSCO).
It will be interesting to see how Clarke, whom is still not fully committed to Fresh & Easy, will handle the U.S. operations.
Disclosure: I hold Tesco shares
I am a partner at www.shareladder.com for whom I write a newsletter. Currently the portfolio constructed from the newsletter is up 42% over the last year. The investment principles I follow are mainly derived from the Benjamin Graham school of investing.
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