Tesco stacks up another loss at Fresh & Easy ...

... but chief executive will point to better figures for UK sales
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The Independent Online

Tesco's chief executive is likely to come under renewed pressure from investors this week over its US business, Fresh & Easy, which is set to post another painful half-year loss.

Alongside the group's first profit fall in nearly 20 years, Philip Clarke – who took the helm in March 2011 – will on Wednesday have to defend tumbling sales in South Korea, which is its biggest market outside the UK.

However, Mr Clarke will be able to point to improved UK trading in Tesco's second quarter, which accounts for more than 60 per cent of group sales and profits. This follows Tesco's unveiling, in April, of a £1bn investment to turn around its stuttering British business by recruiting 8,000 staff, introducing 1,800 new products and sprucing up its stores to give them a "warmer feel".

Fresh & Easy, which launched in November 2007, is forecast to post a disappointing loss of £70m over the half-year to 25 August, down slightly from £73m. This deficit will add to the losses of more than £700m suffered at the 199-store Fresh & Easy so far, although Tesco has set a delayed break-even target of February 2014.

Clive Black, the analyst at Shore Capital, said: "I think Philip Clarke is between a rock and a hard place. He has inherited a situation where there is not a lot of upside."

He added: "I think Tesco will try to stick at it and get it to break-even or profitability. This would put Tesco in a better position to consider its options, such as a possible trade sale or joint venture, if it did eventually decide to exit."

Overall, Tesco is set to post a 11.7 per cent fall in group pre-tax profits to £1.52bn over the half-year, according to Shore Capital, which is the group's first decline since 1994. The fall reflects the grocer's £1bn investment in its UK business, which followed its first profit warning in 20 years in January.

Deutsche Bank, Tesco's joint house broker, expects it to deliver a 0.1 per cent rise in UK like-for-like sales in its second quarter, an improvement on the 1.5 per cent fall in the previous three months.

However, Tesco's UK profits are set to fall by 13 per cent to £1.1bn, following a sharp fall in its operating margin to 5.1 per cent.

Overseas, Mr Clarke's biggest current headache appears to be in South Korea, where the government has recently introduced Sunday trading restrictions. This is expected to contribute to an 8 per cent fall in like-for-like sales in the second quarter in the east Asian country, although Tesco's operation in Thailand is forecast to be in positive territory, according to Deutsche Bank.

The mood at Tesco is unlikely to be helped by news from fierce rival Sainsbury's that same day, which is again expected to show its trading resilience by posting a 1.4 per cent rise in like-for-like sales over the 16 weeks to 29 September.