05/12/2012 04:08 GMT | Updated 05/12/2012 04:10 GMT

Tesco To Review Fresh & Easy Chain As US CEO Exits

Tesco, the UK's largest supermarket, has been forced into reviewing its US venture, 'Fresh & Easy', and admitted general merchandise sales in the UK had been "not good enough".

Like-for-like sales in the UK fell 0.6% in the quarter - which was better than previous estimates of a 0.8% fall - but in food, where much of the company's improvement plans are focused, like-for-like sales rose 1.2%. Online grocery sales also rose by 15%.

Chief executive Philip Clarke said the poor merchandise sales reflected the continuing weakness in consumer demand, but that Tesco was going to reallocate space in stores away from categories such as consumer electronics and home entertainment.

"This will enable us to give even greater focus to categories such as clothing, nursery and home, which are delivering better top and bottom line growth," he said.

A second announcement made by the supermarket giant on Wednesday saw it announce a "strategic review" of its US operation Fresh & Easy.

Having previously announced a constrained capital investment into Fresh and Easy in October, Tesco has now announced that the US operation's chief executive Tim Mason is to leave after 30 years of service.

"It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form," the statement said.

"We have therefore appointed Greenhill to assist with the review of options. In recent months, we have had a number of approaches from parties interested in acquiring either all or part of Fresh & Easy, or in partnering with us to develop the Fresh & Easy business."

An announcement on what will happen to the brand is expected in Tesco's full year results, due in April 2013.

Shore Capital's retail analyst Clive Black told Huff Post UK the review was a sign that Tesco will be exiting the US market.

"The exit from the USA is quicker than we thought but probably the right decision. We are encouraged by some comments on UK grocery, albeit non-food is weak. Overall, a low tide of activity is taking its toll," he said.

"We see this review as one of the most high profile and perhaps defining moments in Philip Clarke's position as CEO of the Group.

"The move, however, follows on from a series of decisions that introduce more focus and capital discipline by Tesco, which if sustained and seen through will transform free cash flow generation and potentially lead to shareholder friendly outcomes."