Thoughts on Select Fresh & Easy Locations Being Closed

| About: Tesco PLC (TSCDY)

Fresh & Easy has announced that they are closing 13 stores in the Las Vegas (6 closings), Phoenix (6 closings) and Inland Empire (1 closing) markets. This represents about 8% of the 168 total Fresh & Easy (OTCPK:TSCDY) stores.

I guess its a good sign that they are willing to pull the plug on underperforming sites rather than let them continue to pile up losses.

I presume most of these sites are leased (as opposed to company owned). If you have ever seen a Fresh & Easy lease or worked on one as an investment you will most likely know that the #1 concern for investors and lenders has always been the financial strength of the entity. US operations were initially funded with approximately $2 Billion but I have yet to see a connection between that $2 Billion and the lease guarantor.

From the way the OC Register article is written, it appears that Fresh & Easy will continue to pay rent and fulfill their obligation as “tenant” under these leases. The first sentence of the article states that “Fresh & Easy is temporarily closing 13 of its “neighborhood” markets in areas that have been hit hardest by the recession.” Stating that these are “temporary” closures indicates that they may desire to open these stores once again. It would be hard to guarantee yourself that option if you default under said leases. Who knows, maybe the locations are bad enough that they can stop paying rent, tell the landlords to pound sand and then come back in 2 years and reopen because the sites are unable to sustain any other retailer. Based upon some of the Fresh & Easy sites I’ve seen, this scenario is not as ridiculous as it sounds.

I would love to see the site closure list. Please send it to me if you have it…..

Update: Here is an article about the Phoenix store closings and here is an article about the Moreno Valley store closing.