Tesco tears up plans for new superstores

Grocer to detail revival strategy as UK profits dip

Tesco has put all new plans for superstores on hold for the next three years as the retail empire takes drastic action to turn around its fortunes.

Philip Clarke, its chief executive, will slash spending after he unveils the first decline in annual profits in its UK business for at least 20 years on Wednesday. As part of his strategy to tackle Sainsbury's resurgence, Tesco's development team will not commit to any new large supermarkets for the next three years.

The move will see the grocery giant only signing up for small stores such as convenience stores and Metro concepts. Its superstores – of more than 25,000 sq ft – and its huge Tesco Extra formats are on ice, which will cheer environmentalists who claim a "Tescopoly" has ruined the landscape and strangled market towns. But its lengthy development pipeline will still mean Tesco will continue to open large stores for the next two years.

Mr Clarke could also signal that he plans to exit some of the group's peripheral businesses, such as its gold-for-cash exchange business and its non-food Homeplus stores, as he seeks to focus on improving the performance of the UK operation, which accounts for two-thirds of the group's profits.

Tesco is set to post a 2 per cent fall in UK trading profits to £2.47bn over the year to 25 February, according to its joint house broker Nomura. This partly reflects the UK operation's dire 2.3 per cent fall in underlying UK sales over the six weeks to 7 January.

On Wednesday, Mr Clarke, who has suffered a management exodus since he took over the helm from Sir Terry Leahy in March 2011, will flesh out the details of nearly £800m of expenditure on refurbishing the UK stores over the next two years, according to the broker JP Morgan Cazenove.

This strong UK focus has led some analysts to speculate that Tesco could exit from other "more tangential" businesses, following the closure of its second-hand cars website this year. James Anstead, an analyst at Barclays Capital, said: "There may be some symbolic value in being seen to close some of the more unusual departures." He also expects Tesco to confirm the "running down" of Homeplus.

Despite its UK wobble, Tesco will still grow its group pre-tax profits by 2 per cent to £3.88bn over the year, boosted by strong growth overseas, where it operates in 13 countries.

Tesco has set its US business a target of "break even" by February 2013.

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