Tesco under fire over its US expansion and slowing sales

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Piper Jaffray analyst Mike Dennis said "poor weekly sales" at Tesco's recently opened Fresh & Easy stores in the US could be hit by competition from Wal-Mart's new Marketside convenience stores.

He also warned that disappointing full-year results for 2008 next Tuesday from Tesco could lead to a string of downgrades for 2009.

Tesco's recent performance is thought by many in the City to have been weaker than that of its rivals, though it is still expected to deliver a 10% rise in profits to about £2.8 billion. The shares fell 8¼p to 401¼p.

Tesco launched Fresh & Easy in a publicity blaze in November but after opening nearly 60 stores has now halted expansion for three months.

Dennis today said Marketside could draw custom away from Fresh & Easy and "give Tesco's US business an unwelcome broadside to its already weak sales and accelerating losses".

He said that the combined effect would mean revenues in the US will be around $600 million this year - just half earlier City forecasts of $1.2 billion. Dennis also warned that sales growth was slowing down in the UK.

His comments came just a little over a month after he first cast doubt over how successful Tesco would be in America. Towards the end of February, Dennis warned that the Fresh & Easy concept "is not right" and that it could cost Tesco £400 million to quit the American market.

This comes at a difficult time for an increasingly edgy Tesco. Last week it began legal proceedings against The Guardian newspaper and its editor Alan Rusbridger for alleged libel and malicious falsehood over claims about its tax affairs.