Tesco shares rise after Q3 update and moves to sell Fresh & Easy US chain
City Index December 5, 2012 1:43 PM
<p>Tesco shares rose straight to the top of the FTSE 100 on Wednesday after the world’s third largest supermarket announced plans to review its US […]</p>
Tesco shares rose straight to the top of the FTSE 100 on Wednesday after the world’s third largest supermarket announced plans to review its US loss making chain Fresh and Easy, which could ultimately see the firm pull out of the US altogether.
The move to review its US operations is a big win for shareholders, who have been largely disappointed by the retailers’ inability to turn the business around quickly enough from loss making, having invested around £1bn in the region over the last 5 years.
Investors and shareholders have been crying out for a solution to the loss making Fresh and Easy business and the move by Philip Clarke today to announce a strategic review into the business provides some much needed clarity on the direction the company wants to take – which is to focus on its core home markets and re-establish its dominance having lost market share to rivals such as Sainsbury’s and Asda.
Longer term question marks will continue to arise about the company’s ability to drive global growth but right now the focus is on re-cementing the retailers dominance.
The company has seen a dramatic fall in sales over the past 18 months as shoppers refrained from buying non food items such as electrical goods, as austerity in the UK bites and earnings growth slowed. This is where Tesco has really struggled given the breadth of its product offering, whilst rivals focused predominantly on food and the company launched a £1bn turnaround plan earlier this year to address the marked slowdown of its UK business, with a focus on store rebrands, marketing and pricing.
The third quarter like for like sales fall of 0.6% in the UK came in slightly below the median forecasts of a 0.3% fall in sales, which was disappointing given that in the second quarter, the supermarket chain returned to a marginal sales growth of 0.1% for the first time in 18 months.
For now however, investors are focusing purely on the clarity surrounding the future of the firms Fresh and Easy business, where Tesco admit they have received several approaches to sell all or part of the business.
Share price hits new 2 month high
The share price reaction has been very positive, with shares rallying over 3.5% in early trade and hitting a new their highest levels since late September. Tesco’s shares prices had been locked in a trading range between 300p and 330p before today’s announcement. Yet today’s moves helps shares to break out of that range to a new high of 342p.
Shares are however in danger of a head and shoulders reversal if the cannot close above 342p today and the next resistance level lies at 350p. A break above 350p will see investors targeting the 400p level once again, a level the firms shares traded at before January’s shocking price warning.
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