The firm’s flailing Fresh and Easy brand has been a rather large albatross around chief executive Philip Clarke’s neck since he took the reins in 2011. But the US venture was very much the work of his predecessor Sir Terry Leahy, and formed part of a decade-long international expansion drive that saw Sir Terry push – much more successfully – into China and Malaysia among others.
Fresh & Easy has been losing money since well before Clarke was made chief executive, and while the potential £1bn hit a US exit could deal to Tesco’s balance sheet will be hard to swallow, investors are likely to cheer a decisive move.
Analysts estimate the US losses are dragging down earnings by as much as five per cent each year, making it far better to wipe a chunk of the firm’s healthy £17.5bn of net assets than to carry on flogging a dead horse. It’ll give Clarke more time to concentrate on cash generation and keeping the UK business – which still makes up 60 per cent of group profits – on the right road to recovery. Investors will also be hoping it may even free up some cash for a long-awaited buyback, though that seems unlikely to come in this set of results.