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Tesco facing investor pressure over strategy

Major shareholders in Tesco have called on the world's third-biggest retailer to rethink its strategy and improve its struggling domestic market, the Sunday Times reported, three months after the group issued a shock profit warning.

Legal & General Investment Management said the company needed to think about its capital allocation and return on capital.

"It needs to think long and hard about what it wants to be -- can it be everything to everyone, or should it focus on its gem, the British grocery business?" Richard Black of L&G told the paper, on behalf of Tesco's third-biggest shareholder with a 4 percent stake.

"Of course, this is likely to raise questions about other areas of the business, such as America and the bank."

Tesco issued its first profit warning in living memory in January after enduring its worst Christmas in decades, and in March parted company with the head of its UK business, leaving its group Chief Executive Phil Clark to oversee the management of that market too.

Investors are desperate to see Tesco's home market improve, where market share has fallen in recent months to levels not seen since 2005.

Market research data from Kantar WorldPanel said Tesco's market share fell 0.4 percentage points year-on-year to 30.2 percent in the 12 weeks to March 18, while rival Asda, owned by U.S. firm Wal-Mart Stores Inc, rose 0.6 percentage points to 17.9 percent.

Tesco has already detailed a programme to invest in existing and new stores and take on 20,000 new staff. But some shareholders would like to see it go further.

"The actions taken so far to stabilise market share don't seem to have gained traction, and the balance sheet looks stretched, so you have to worry there's another profit warning coming," one top 10 investor told the Sunday Times, without being named.

Another said the company needed to pull back from its push into the United States, and described its efforts in that market with its "Fresh & Easy" business as a "disaster".

"They have racked up hundreds of millions of losses," another unnamed top 10 shareholder said. "It was a brave move but, after identifying the strategy wasn't working, they should have pulled back faster."

Tesco will publish preliminary results on April 18th and will set out its investment plans for its British division.

"We stay close to our investors and know what they expect of Tesco," a spokesman said. "We have a clear target to break even in America and in January we reported that Fresh & Easy had continued its strong run of form.

"In the UK, we began our investment plan last summer, accelerated the pace in January and have already announced important initiatives, including a big investment in price, 20,000 more staff in stores, and the launch of the Everyday Value range."

Source : Reuters

08 April 2012
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